Comment Call: Proposed Clarifications to Overdraft Protection Rules Under Regulations E and DD

CUNA
March 11, 2010

The Federal Reserve Board (Fed) has issued clarifications to the recent final rules amending Regulation E, the Electronic Fund Transfer Act, that prohibit credit unions and other financial institutions from charging overdraft fees for ATM and one-time debit transactions, unless the consumer consents, or “opts-in.” Compliance with these rules will be mandatory as of July 1, 2010, although fees may continue to be assessed without the consumer's permission until August 15, 2010 for those accounts in existence as of July 1st. Click here for more information about these recent final rules.

The Fed has also issued clarifications to the recent final rules amending Regulation DD, the Truth in Savings Act (TISA), that changed the disclosure requirements for overdraft protection plans. The Regulation DD rules do not apply to credit unions but the National Credit Union Administration has issued substantially similar rules, as required under TISA. Compliance with the recent rules issued by both the Fed and NCUA was required as of January 1, 2010. Click here for more information about these rules.

Although credit unions and others have an opportunity to comment on these clarifications, the Fed has emphasized that they will not change the substantive provisions of these rules and that these comments should be limited to the proposed clarifications.

Here are the clarifications for the Regulation E rules:

• The rules include an exception from the requirement to send a notice and obtain an opt-in before charging overdraft fees if the financial institution has a policy and practice of declining ATM and one-time debit transactions when the institution has a reasonable belief that the account has insufficient funds at the time the authorization is requested. The proposal clarifies that charging fees are still prohibited if the consumer does not opt-in and that this exception only provides relief from the notice and opt-in requirements.
• The Fed recognizes that financial institutions may not be able to avoid paying certain ATM and one-time debit transactions that overdraw the account and that the institution will not be able to charge a fee if the consumer does not opt-in. However, the rules prohibit charging fees in these situations, and the proposal clarifies this prohibition.
• If the consumer opts-in, the financial institution must send a written confirmation of the opt-in selection. The proposal will clarify the official staff commentary to Regulation E to indicate that fees may not be charged until the confirmation is sent to the consumer and that institutions will be in compliance with these provisions if they have adopted reasonable procedures designed to ensure that the written confirmation is sent before fees are assessed.
• Some institutions impose different, or “tiered,” fees based on the outstanding negative balance at the end of the day. This would be when one fee is charged if the negative balance is below a certain amount, while a higher fee is charged if the negative balance is above this amount. The proposal will clarify the official staff commentary to indicate that this fee must be based on the amount based solely on the check, automated clearinghouse (ACH), or other transactions if the consumer has not opted-in to ATM and one-time debit transactions. For example, if a negative balance is attributable to both a debit and check transaction, then it would only be the amount of the check transaction that would determine which tier would apply.
• Some institutions may apply daily or sustained overdraft fees in which an additional fee is charged if the overdrawn amount is not repaid within a certain amount of time. Although this is not permitted for ATM and one-time debit transactions, unless the consumer opts-in, these types of fees are permitted for check, ACH, and recurring debit transactions. The official staff commentary clarifies that fees may be charged in situations in which a negative balance results from both an overdraft in which an opt-in is required and an overdraft, such as a check or ACH transaction, in which the opt-in is not required. For example, if an account has a balance of $50 and there is then a $60 debit and a $40 check transaction, the institution may charge a fee for the check only and then charge a sustained fee if the negative balance at that time is attributable in part to the $40 check. For sustained fees, the date that the account goes into overdraft is determined solely by the date that the check, ACH, or other transaction is paid into overdraft for purposes of calculating the date when a sustained fee can later be charged, even if ATM and one-time debit transactions are posted on different dates. For example, if new fees are charged if the account remains negative after five days, then the five-day period begins on the date the check, ACH, or other transaction is posted, regardless of when the ATM or one-time debit transaction is posted.
• The proposal revises the official staff commentary to clarify that credit secured by margin securities in brokerage accounts extended by registered broker-dealers is not considered an “overdraft service.”
• The Fed intends to finalize these clarifications before the July 1, 2010 mandatory compliance date.

Here are the clarifications for the Regulation DD rules:

• The proposal clarifies that the term “Total Overdraft Fees” must be used on the period statement when describing the total amount of fees imposed for paying overdrafts.
• For balance information that is disclosed through an automated system, the rules require that it not include the amount available that the institution may provide to cover items, including amounts available under an overdraft program. The proposal clarifies that amounts available under a retail sweep account can, however, be included in the disclosed balance information.
• The rules allow disclosure of an additional balance that is available through an overdraft program, line of credit, or transfer from another account, as long as it is prominently disclosed that this second balance includes this additional amount. The rules indicate that the second balance may not be disclosed if it is in connection with an overdraft service if the consumer has opted-out of the service. The proposal clarifies that this also includes when the consumer has not opted-in when the opt-in is required for the service. If the additional funds are not available for all types of transactions, then this must also be disclosed along with the additional balance. The proposal includes the example that it must be disclosed that the consumer may not access the overdraft balance through ATM and one-time debit transactions if the consumer has not opted-in to the program, even if the funds may be available through a line of credit or transfer from another account.
• The clarification with regard to the use of the term “Total Overdraft Fees” will be effective 90 days after these clarifications are issued in final form. The other clarifications will be effective 30 days after they are issued in final form.

Comments are due to the Fed by March 31, 2010. Comments are due to CUNA by March 23, 2010.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposed clarifications or you may access them here:

• Regulation E clarifications
• Regulation DD clarifications

> View the full comment call with questions to consider at cuna.org

Susan Boyle, Business Model Parable

Kay Plantes
March 10, 2010

Susan Boyle, a 47-year-old unemployed woman appeared as anything but a leading candidate for British Idol success (blockbuster American Idol and its British spin-off are talent shows for amateur singing talents). Prior to her appearance, Boyle had spent her adult life caring for aging parents in a small Scottish town. No wonder the judges and audience laughed as the overweight, seemingly backward woman walked onto the stage in a frumpy dress, with a 1950-ish haircut and challenging accent, claiming she wanted a career as a singer.

Boyle's moving rendition of “I Dreamed a Dream” from the Broadway Tony Award-winning musical Les Miserables drew gasps, then cheers, and then a spontaneous standing ovation from the audience. With a voice which made Julie Andrews, star of Sound of Music and Mary Poppins, sound amateurish, Boyle's try-out became You-Tube's most watched video in 2009.

Talent Boyle had in spades. But it takes more than talent to be a star. Since the April show, Boyle has transformed her persona to meet all the requirements for a successful performance career. Publicists at her side, a caring agent, a broader singing repertoire, and a stylist transformed this raw talent into a stellar performer.

Along the way Boyle was forced into challenging personal learning, necessitated by the crisis that occurred when the reclusive woman could not emotionally handle her sudden fame. Today Boyle stands confidently, totally enjoying the thrilling life she has created.

Every organization has a latent talent, waiting to be developed and deployed to serve others. Like Boyle, other changes may be necessary to build a winning business model and secure success. Crises all too often induce these changes.

How might your organization—a collection of individual talents and organizational capability—shine? What customer group can you most delight and turn into raving-about-your-organization fans? What could you do to earn their standing ovation? With this in mind, what changes should your organization make to turn your talent(s) into an organizational advantage that lets you compete as one–of–one in an attractive market?

Build a business model around this talent. Define your target market. Decide on the scope of your business—what you are and what you are not. Capture and communicate the value promise that will lead customers to consider you. And identify, besides your talent, other aspects of your organization that will make your value promise challenging for competitors to copy. Finally, define the structures and strategies you'll deploy to ensure profitability. With these decisions in hand, go execute.

Watch and listen to the Boyle video. The emotions you feel tap the universal desire of humans to express our innate talents and shine in the eyes of others.

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author in Madison, Wisconsin. Reprinted with permission from her blog at www. plantes company.com/ blog.

Flexible ‘Lattice’ Replaces Corporate Ladder

CU360
March 5, 2010

Credit unions finished 2009 with nearly 10% net worth, while loan demand and delinquencies showed weakness in the face of economic stress, according to Call Report data released March 1 by NCUA. Membership in the nation's 7,554 federally insured credit unions increased to nearly 90 million, and shares grew at a robust 10.5%.

“Credit union membership growth is impressive and encouraging,” says NCUA Chairman Debbie Matz. “These positive developments, however, are tempered by recognition of ongoing market stresses. This reality reinforces NCUA's decision to increase examination staff and augment regulatory oversight to monitor and assist credit unions faced with persistent, adverse economic conditions.”

CU360 is an online portal for benchmarking tools, market insights, industry data, and analytical information. This article was orginally published online by CU360 at cu360.cuna.org. Reprinted with permission.

Reflecting stress in the job market and a struggling economy, delinquent loans to total loans increased to 1.82%. Credit unions continued to build provisions for loan losses as the ratio of net charge-offs to average loans grew from 0.85% to 1.21% during the year.

Overall loan volume grew 1.1%. Most of the loan growth in 2009 was in used automobile, credit card, and first mortgages.

Net income returned to a positive $1.7 billion after a two-year decline. This figure includes both NCUSIF stabilization income and expense in 2009. Data also suggests that, by improving cost management, credit unions reduced operating expenses and the return on average assets grew 24 basis points compared to year-end 2008.

Details of major balance-sheet items and member growth in federally insured credit unions from January through December 2009 include:

• Assets increased 9.08% to $884.8 billion from $811.1 billion;
• Loans grew 1.1% to $572.4 billion from $566.0 billion;
• Shares increased 10.5% to $752.7 billion from $681.1 billion;
• Investments increased 27.3% to $210.9 billion from $165.7 billion;
• Net worth grew 1.9% to $87.7 billion from $86.1 billion; and
• Membership increased 1.5% to 89.9 million from 88.6 million members.

Because share growth significantly outpaced loan growth during 2009, the loan-to-share ratio declined to 76.05% from 83.1% posted at year-end 2008. This resulted in significant investment growth.

Within share accounts, regular shares, share drafts, and IRA/Keogh accounts each posted double-digit increases, and money market shares grew a substantial 23.5%.

Funds in federally insured credit union share certificates declined 0.2%. Used-car loans increased 4.1%. First mortgage real estate loans and lines of credit grew 4.4% in 2009. Credit cards posted 6.6% increase—2% lower than the 8.6% unsecured credit card debt posted in 2008. New-car loans declined 7.7% and other types of real estate loans declined 4.3%.

To protect against potential losses, federally insured credit unions increased provisions for loan and lease losses by 34.1% during 2009 following a 120% increase in 2008. Over $9.4 billion is now set aside to cover loan and lease losses. Delinquent loans grew 33.7% to a reported $10.4 billion.

How HR Pros Have Proven Complete Pay Transparency Is a Bad Idea

Kris Dunn
March 3, 2010

Frank Roche had some great data up over at Know HR on Pay Transparency last year—check it out, because it's the real deal regarding how people really feel about pay transparency—not how individuals want you to feel.

I'm on the record as saying that the employee relations fallout from complete pay transparency dramatically outweighs the benefits. While it's trendy and seems progressive to call for full transparency in pay rates and pay practices in organizations, the folks who are calling for it don't have to live with the employee fallout. 

While I'm here, let me go on the record with another piece of information: HR people have proven to me that complete pay transparency is a bad idea.

That's right. I'm calling out my own, not pointing to other people. Work with me on the following flow chart:

1. HR pros have access to all the pay data for the units they serve.
2. HR pros often have access to all records , including the units they don't serve.
3. While we never sign an agreement or a code of ethics, I expect people to treat that pay data with complete confidentiality.
4. Complete confidentiality and ethics for HR pros, who have access to all pay data, means they never use their access for their own benefit .  At least that's my standard.
5. Many HR pros can't handle the realities embedded in the pay comparisons they make between themselves and others  and, as a result, become vocal about the differences. Worse, they may not become vocal but choose to leak pay data to other parts of the organization.

It's sad, but true. The HR pros I've encountered in my career have proven that you can't have full pay transparency. I'm going to guess that I've worked with 50 HR managers in my career, including bosses, direct reports to me, and peers. Out of those 50, at least 10 have wigged out when they came across pay data they thought proved that they were undervalued.

Except it didn't. And the folks who complained and caused employee relations issues were always the low performers. Their pay was fair from an experience, credentials, and performance standpoint. 

I'll say it a thousand times: With great access comes great responsibility. You have access to all the pay data in HR? You need to get mature—real fast.

I've seen the same things, albeit on a less frequent basis, from accounting pros with access to payroll data.

If HR pros can't treat compensation data with a mature eye and that's a job requirement, what hope does the whole organization have?

Last note—most of the HR pros I've worked with have treated the access with great responsibility. To you, I throw a salute. You're a pro, and I'm glad I'm working (or have worked) with you.

To the rest of you—get out, you're hurting the profession.

Reprinted with permission from Kris Dunn's blog. Dunn is vice president of HR of Daxko, a software company.

EEOC Proposes Rules Defining “Reasonable Factor other than Age”

HR Hero
February 25, 2010

The Equal Employment Opportunity Commission (EEOC) has proposed regulations that would define “reasonable factor other than age” under the Age Discrimination in Employment Act (ADEA).

The need for these rules arises in the wake of the Smith v. City of Jackson decision, a 2008 U.S. Supreme Court case in which the Court addressed the appropriate standard for determining whether an employment practice that disproportionately affects older workers and would otherwise violate the ADEA is justified. In Smith, the Supreme Court stated that the “reasonable factors other than age” test, not the “business-necessity test,” was the appropriate standard. However, this decision raised questions about the definition of “reasonable factors other than age.” It is in response to those questions that the EEOC has proposed regulations.

The proposed rules would define “reasonable factor” and would delineate what an employer would have to prove to establish the defense that its employment practice was based on a reasonable factor other than age. Specifically, the employer would have to show that the practice was both reasonably designed to further or achieve a legitimate business purpose and administered in such a way that reasonably furthers that purpose. The rules also list factors that could be relevant to determining the reasonableness of a particular employment practice, including:

• Whether the practice and its implementation are a common business practice
• The severity of harm to the protected employees
• Whether other options were available to the employer

The proposed rules also would provide assistance in determining whether a factor is one “other than age.”

The EEOC is soliciting public comments on the proposed rules through April 19, 2010.

HRhero.com was created by M. Lee Smith Publishers LLC to help human resource professionals find quick answers to their employment law and management questions. Copyright 2009 by M. Lee Smith Publishers LLC and reprinted with permission.