(As published in BankingExchange.com)
A topic that has generated questions from a number of financial institutions
In August 2022, the FDIC released guidance on charging multiple NSF (Non-Sufficient Fund) fees on re-presented items — a topic that has generated questions from a number of financial institutions. The content of the guidance is similar to the discussion the FDIC set out in its Consumer Compliance Supervisory Highlights in March of 2022. You can find the August FDIC guidance here: https://www.fdic.gov/news/financial-institution-letters/2022/fil22040a.pdf?source=govdelivery
Potential Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) Violations
In its guidance, the FDIC advises that charging multiple fees on re-presented items may present UDAAP violations if handled improperly.
First, this practice might be viewed by the regulator as “deceptive” if the institution does not adequately advise customers that the financial institution may assess multiple NSF fees arising from the “same transaction.”
Second, the practice may also be considered “unfair” if the consumer does not have sufficient notice or opportunity to bring their account balance positive and avoid the assessment of additional NSF fees related to the re-presented transaction.
The FDIC notes that adequate disclosures may address the deception concern, but disclosures alone do not address the risk of unfairness.
Risk-Mitigation Strategies
To address the concern of unfairness, the FDIC provides several risk-mitigation recommendations, including simply not charging multiple fees for the same transaction. If an institution does charge a fee when a transaction is re-presented, the FDIC recommends:
- Clearly and conspicuously disclosing the amount of NSF fees to customers, as well as describing when and how such fees will be imposed. This includes:
- Explaining whether multiple fees may be assessed for a single transaction when a merchant submits the same transaction multiple times for payment;
- Describing the frequency with which such fees can be assessed; and
- Disclosing the maximum number of fees that can be assessed in connection with a single transaction.
The FDIC also provides recommendations related to customer notifications or alerts and the timing of fees, which would give customers the chance to restore their account to a positive balance before additional NSF fees would be assessed.
The FDIC encourages financial institutions to self-identify and self-correct re-presentment NSF fee issues. For those institutions that have difficulty accessing more than two years of reliable ACH data, the FDIC has accepted a two-year lookback period for restitution (see the last footnote in the guidance).
Financial Institution Next Steps
First, and most importantly, institutions should review their Terms and Conditions content together with their fee schedule content in light of the new FDIC guidance, to verify the content clearly discloses that multiple NSF fees may be assessed for the same transaction, if that is their practice. In general, the institution should make sure the content of their Terms and Conditions accurately conforms with their practices. This is especially true if the institution wants to include risk mitigation strategies like limiting the frequency with which an NSF fee can be charged on a re-presented item or including a cap on fees for the same.
In addition, institutions may want to review their policies, procedures, and communications when an NSF fee is charged, especially as those policies, procedures, and communications relate to informing the customer that subsequent fees may be charged if the item is re-presented as well as the amount of time the customer may have to bring the account balance current.
Further Discussion on Overdraft Trends
For further discussion of legal and regulatory trends affecting overdraft and nonsufficient funds fees, please see “Overdrafts: Litigation, Regulatory Trends, and Action Steps,” by Karl Leslie and Therese Kieffer (September 2022).
