FDIC Warns Institutions Against Charging Deceptive NSF Fees
In August of 2022, the Federal Deposit Insurance Corporation (“FDIC”) issued guidance[1] warning supervised financial institutions against “assessing multiple non-sufficient funds ("NSF") fees arising from the re-presentment of the same unpaid transaction.”
According to the FDIC, charging multiple payment failure fees on the same transaction raises several compliance concerns:
may constitute an “unfair or deceptive acts or practices” under Section 5 of the Federal Trade Commission Act (“FTA”) because these repetitive fees are often coupled with a failure to disclose “material information to customers about re-presentment and fee practices” which “has the potential to mislead reasonable customers”;
may require financial institutions to review all third-party contracts where these third parties, such as core processors, “play significant roles in processing payments, identifying and tracking re-presented items, and providing systems that determine when NSF fees are assessed” to ensure adequate oversight and appropriate quality control are deployed throughout these third-party operations;
may result in “heightened litigation risk” amongst numerous financial institutions relating to class action breach of contract lawsuits and claims relating to “failure to adequately disclose re-presentment NSF fee practices in their account disclosures” that have been proven to result in “substantial settlements, including customer restitution and legal fees.”
In order to minimize these concerns, the FDIC encourages financial institutions to “review their practices and disclosures regarding the charging of NSF fees for re-presented transactions” and to to engage in the following risk-mitigating activities to “reduce the potential risk of consumer harm and avoid potential violations of law”:
eliminate NSF fees;
decline to charge multiple NSF fees for the same transaction;
engage in a “comprehensive review of policies, practices, and monitoring activities related to re-presentments”;
“[c]learly and conspicuously” disclose information relating to the timing and basis of issuance of NSF fees to customers, including the occurrence of multiple fees with a single transaction, the frequency and the maximum number of that fees can be assessed to a single transaction; and
review customer notification or alert practices relating to NSF transactions and the timing of these fees “to ensure customers are provided with an ability to effectively avoid multiple fees for re-presented items, including restoring their account balance to a sufficient amount before subsequent NSF fees are assessed.”
Additionally, all FDIC-supervised financial institutions who “self-identify re-presentment NSF fees issues” to engage in
“full corrective action” including restitution to harmed customers;
correct NSF fee disclosures and account agreements for all customers;
engage in any additional risk mitigation practices “needed to reduce potential unfairness risks”; and
monitor activities and customer feedback to ensure corrective action is “full and lasting.”