“Free” accounts and overdraft fees

As I am sure you are all aware, the Truth in Savings regulation has strict rules on when credit unions may advertise an account as “free.” Essentially, if a maintenance or activity fee may be imposed on the account, the account cannot be advertised as free. The commentary provides a number of examples of fees that are and are not maintenance or activity fees. However, the commentary does not address all the potential types of fees that a credit union may impose, leaving credit unions to make a determination whether its fee is a maintenance or activity fee. Today’s blog addresses a common fee that is not directly addressed in the commentary: fees for overdraft protection programs.

Determining whether an overdraft fee is a maintenance or activity can be a rather challenging analysis as you have to read through several scattered portions of the commentary. First, let’s start with the commentary on which fees are maintenance and activity fees. Comment 3 to section 707.8(a) explains that “transaction and service fees that members reasonably expect to be imposed on an account on a regular basis” are maintenance and activity fees. The commentary points specifically to comments 1 and 2 to section 707.4(b)(4) to determine which fees are transaction and service fees.

So, let’s looks at these comments. Comment 1 explains that fees such as maintenance fees, fees related to share deposits or withdrawals, overdraft line of credit access fees that are assessed against the share account and fees to open or close an account are included. Comment 2 explains that fees such as fees for services offered to both members and nonmembers, garnishment fees, name change fees or wrong address fees are not included. As you will notice, the only reference to an overdraft fee is an overdraft line of credit access fee, but general overdraft fees are not discussed. This does not really get us anywhere, so we need to keep going.

 

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