Minimizing consumer compliance risk with overdraft programs is the subject of separate guidance issued Wednesday by two federal banking regulators, particularly with programs that assess an overdraft fee on a transaction that was authorized against a positive balance but settled against a negative balance (APSN).
In their advisories, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) explained that banks should be aware of “heightened risks” when assessing overdraft-related fees on APSN transactions. Specifically, the agencies noted practices that violate Section 1036 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and Section 5 of the Federal Trade Commission (FTC) Act.
The agencies said the practices include the ASPN approach (“authorize positive, settle negative”), and assessing an additional fee each time a third party resubmits the same transaction for payment after a bank returns the transaction for non-sufficient funds (NSF) (referred to as “representment fees”).
“Unanticipated and unavoidable overdraft fees can cause substantial injury to consumers,” the FDIC said in its financial institution letter (FIL) 19-2023. “Due to the complicated nature of overdraft processing systems and payment system complexities outside the consumer’s control, consumers may be unable to avoid injury.”
The agency urged banks to review their practices regarding the charging of overdraft fees on APSN transactions to “ensure customers are not charged overdraft fees for transactions consumers may not anticipate or avoid.”
In particular, the agencies advised banks to make certain efforts to help manage risk of overdraft protections. Those include:
- Assisting consumers in avoiding unduly high costs in relation to the face value of the item being presented, the amount of their regular deposits, and their average account balances.
- Implementing fees and practices that bear a reasonable relationship to the risks and costs of providing overdraft protection program services.
OCC Bulletin 2023-12: Overdraft Protection Programs: Risk Management Practices
FDIC FIL-19-2023: Supervisory Guidance on Charging Overdraft Fees for Authorize Positive, Settle Negative Transactions