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Sustained negative balance fees under the CARD Act

February 17, 2012

by Drew Edwards, Esq.

We all know that the recent CARD Act prohibits fees on debit card overdrafts without an opt-in.  But what if your account agreement includes a continuing or monthly fee for existing negative balances?  According to the official interpretation of the rule*, such fees are also prohibited:

[T]he fee prohibition in §205.17(b)(1) applies to all overdraft fees or charges for paying those transactions, including but not limited to daily or sustained overdraft, negative balance, or similar fees or charges. Thus, where a consumer’s negative balance is solely attributable to an ATM or one-time debit card transaction, the rule prohibits the assessment of such fees unless the consumer has opted in.

There you have it: as long as the negative balance is solely attributable to ATM or one-time debit transactions you can’t assess any fees without an opt-in.  However, this blanket prohibition isn’t the whole story.  If the negative balance is partly due to check or ACH transactions, you are permitted to charge continuing or sustained fees based on the fact of a negative balance (you still can’t assess fees for the individual debit transactions of course).  As always, if you have any questions about your fee policy or a specific account situation, speak to your lawyer or compliance officer.

DISCLAIMER: The foregoing is provided for informational purposes only, and does not constitute legal advice. It is not a substitute for legal or professional advice. Any legal advice should be tailored to specific clients and their specific needs. No attorney-client relationship is created by any use of this website. You should not act on the information contained in any of the materials on this website without first consulting a competent attorney licensed to practice in your jurisdiction.

*The official interpretation is contained in Supplement I to 12 CFR Part 205

From → Credit Unions

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