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Financial Services Law Insights and Observations


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  • FDIC warns financial institutions about NSF fees

    On August 18, the FDIC issued FIL-40-2022 along with supervisory guidance to warn supervised financial institutions that charging customers multiple non-sufficient funds (NSF) fees on re-presented unpaid transactions may increase regulatory scrutiny and litigation risk. According to the FDIC, some institutions’ disclosures did not fully or clearly describe their re-presentment practices and failed to explain that the same unpaid transaction may result in multiple NSF fees if presented more than once. Failing to disclose “material information to customers about re-presentment and fee practices has the potential to mislead reasonable customers,” the agency said, noting that the material omission of this information is considered to be deceptive pursuant to Section 5 of the FTC Act. Additionally, “there are situations that may also present risk of unfairness if the customer is unable to avoid fees related to re-presented transactions,” the FDIC said.

    The supervisory guidance also discussed the agency’s approach for addressing violations of law, noting that it will focus on identifying re-presentment-related issues to ensure correction of deficiencies and remediation to harmed customers. The agency stated that examiners “will generally not cite UDAP violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination,” and noted that it “will consider an institution’s record keeping practices and any challenges an institution may have with retrieving, reviewing, and analyzing re-presentment data, on a case-by-case basis, when evaluating the time period institutions utilized for customer remediation.” However, the FDIC warned that “[f]ailing to provide restitution for harmed customers when data on re-presentments is reasonably available will not be considered full corrective action.” Financial institutions are encouraged to review practices and disclosures related to the charging of NSF fees for re-presented transactions and should consider FDIC risk-mitigation practices to reduce the risk of customer harm and potential violations.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance FDIC NSF Fees Consumer Finance Supervision FTC Act UDAP Deceptive Risk Management

  • NYDFS issues overdraft and NSF fee guidance

    State Issues

    On July 12, NYDFS issued guidance in an industry letter to regulated banking institutions, calling into question bank practices that can cause consumers to receive multiple overdraft and non-sufficient funds (NSF) fees from a single transaction. The industry letter identifies three specific types of fee practices as unfair or deceptive:

    • Charging overdraft fees for “authorize positive, settle negative” transactions, where consumers are charged an overdraft fee even if they have sufficient money in their account when a bank approves a transaction, but the balance is negative when the payment is settled. Per NYDFS, imposing an overdraft fee in this situation is unfair because, among other things, consumers “have no control over or involvement in” when or how their debit transactions get settled.
    • Charging “double fees” to consumers for a failed overdraft protection plan transfer, which occurs when a bank goes to transfer money from one deposit account to another deposit account to cover an overdraft transaction, but the first account lacks sufficient funds to cover the overdraft. Per NYDFS, double fees injure consumers “by imposing fees for a transfer that provides no value to the consumer and is not reasonably avoidable by consumers, who have no reason to expect that they will be charged a fee for an overdraft protection transfer that does not in fact protect them against an overdraft.”
    • Charging NSF representment fees when a merchant tries several times to process a transaction that is deemed an overdraft and the bank charges a fee for each blocked representment without adequate disclosure. Banks that currently charge multiple NSF fees should “make clear, conspicuous, and regular disclosure to consumers that they may be charged more than one NSF fee for the same attempted debit transaction,” NYDFS stated. Additionally, banks are advised to consider other steps to mitigate the risk that consumers are charged multiple NSF fees, including limiting time periods for when multiple NSF fees may be charged, performing periodic manual reviews to identify instances of multiple NSF Fees, and offering refunds to affected consumers. NYDFS “ultimately expects [i]nstitutions will not charge more than one NSF fee per transaction, regardless of how many times that transaction is presented for payment,” the industry letter said.

    NYDFS informed regulated entities that it will evaluate whether they “are engaged in deceptive or unfair practices with respect to overdraft and NSF fees in future Consumer Compliance and Fair Lending examinations.”

    State Issues State Regulators NYDFS Consumer Finance New York Overdraft NSF Fees Unfair Deceptive

  • CFPB examining impact of overdraft programs

    Federal Issues

    On June 16, the CFPB published a blog post outlining recent efforts taken by the agency to collect key metrics concerning the consumer impact of certain supervised institutions’ overdraft and non-sufficient fund (NSF) practices. The Bureau asked more than 20 institutions to provide data on several “consumer-impact metrics,” including: (i) the “[t]otal annual dollar amount consumers receive in overdraft coverage compared to the amount of fees charged”; (ii) the annual amount of overdraft fees charged for each active checking account; (iii) the annual amount of NSF fees charged per active checking account; (iv) “the share of active checking accounts with more than 6 and more than 12 overdraft and/or NSF fees per year”; and (v) the “[s]hare of active checking accounts that are opted into overdraft programs for ATM and one-time debit transactions.” The Bureau stated that it plans to “use this information for further examination and review” and to provide feedback to each institution. The Bureau also plans to “share this information with other regulators,” but will not make the supervisory information public. Additionally, the Bureau noted that while it is “encouraged that some banks and credit unions are competing for consumers’ business by changing their overdraft and NSF programs,” many banks still need to improve their practices.

    Federal Issues CFPB Consumer Finance Overdraft NSF Fees Supervision


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