Consumer compliance risks for charging multiple NSF fees due to disclosure failings outlined in letter

Consumer compliance risks over banks assessing multiple fees for presentment of checks to accounts with non-sufficient funds (NSF) – largely because of disclosure failings – are addressed in guidance issued by the federal insurer of bank deposits Thursday.

The Federal Deposit Insurance Corp. (FDIC) said the guidance also addresses the agency’s supervisory approach when the law is violated and expectations for “full corrective action.”

In a financial institution letter (FIL 40-2022), the FDIC stated it has identified violations of law when financial institutions charged multiple NSF fees for the re-presentment of unpaid transactions because disclosures did not fully or clearly describe the financial institution’s re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees if an item was presented more than once.

“Practices involving the charging of multiple NSF fees arising from the same unpaid transaction results in heightened risks of violations of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices (UDAP),” the FDIC wrote.

The agency noted that third parties – including core processors – can play “significant roles” in processing payments, identifying and tracking re-presented items, and providing systems that determine when NSF fees are assessed. “Such third-party arrangements may also present risks if not properly managed,” the FDIC stated, adding that heightened litigation risk may also occur.

“Numerous financial institutions, including some FDIC-supervised institutions, have faced class action lawsuits alleging breach of contract and other claims because of the failure to adequately disclose re-presentment NSF fee practices in their account disclosures,” the agency stated.

The agency said it encourages banks to review their practices and disclosures regarding the charging of NSF fees for re-presented transactions. It also said it has observed some risk-mitigation practices financial institutions implemented to reduce the risk of consumer harm and potential violations.

Supervisory Guidance on Multiple Re-Presentment NSF Fees