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Financial Services Law Insights and Observations

Massachusetts highlights UDAP risks of representment fees

State Issues State Regulators Fees UDAP Massachusetts Disclosures

State Issues

On September 23, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued a supervisory alert reminding financial institutions to clearly disclose representment non-sufficient funds (NSF) fees connected to deposit accounts to avoid consumer confusion as well as potential legal and regulatory risks. The alert explains that a representment NSF fee may occur when a financial institution presents the same transaction again, in an attempt to obtain declined funds. According to the alert, a “repeated merchant payment transaction can trigger the assessment of multiple NSF fees by a depository institution if the transaction is presented more than once,” causing some financial institutions to charge the consumer an NSF fee for both the original presentment as well as for each subsequent representment. The alert discusses consumer protection risks associated with the representment of NSF fees, including recent class action lawsuits for breach of contract, some of which have resulted in customer reimbursements and legal fees. Additionally, the alert highlights issues with standard industry deposit account agreements and fee schedules supplied by payment processing software vendors to financial institutions, which may not adequately explain an institution’s actual NSF fee practices as disclosed to customers. While certain disclosures and account agreements may indicate that one NSF fee will be charged “per item” or “per transaction,” these forms may not sufficiently explain that the same processed transaction may trigger multiple NSF fees. The alert reminds financial institutions charging representment fees that they risk violating state and federal UDAP law if their relevant account disclosures and agreements are not in compliance, and urges financial institutions to review deposit disclosures and contract language to ensure NSF fees are clearly and consistently communicated to consumers.

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