The Federal Deposit Insurance Corporation (FDIC) released supervisory guidance regarding potential risks arising from multiple re-presentment non-sufficient funds (NSF) fees to ensure that supervised institutions are aware of the consumer compliance risks associated with assessing multiple NSF fees arising from the re-presentment of the same unpaid transaction. 

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 determined that if a financial institution assesses multiple NSF fees arising from the same transaction without their disclosures adequately advising customers of this practice, the misrepresentation and omission of this information is deemed to be deceptive under Section 5 of the FTC Act. 
  • It was also determined that failure to adequately advise customers of fee practices for re-presentments raises unfairness concerns because the practices may result in substantial injuries to customers; the injury may not be reasonably avoidable, and there may be no countervailing benefits to either customers or competition. A risk of unfairness may be present if multiple NSF fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for customers to bring their account to a positive balance to avoid additional fees.  

Third parties also play a role when processing payments. Institutions are (1) expected to maintain adequate oversight of third-party activities and appropriate quality control over products and services provided through third-party arrangements; (2) responsible for identifying and controlling risks arising from third-party relationships to the same extent as if the third-party activity was handled within the institution; and (3) encouraged to review and understand the risks presented from their core processing system settings related to multiple NSF fees, as well as understand the capabilities of their core processing system(s), such as identifying and tracking re-presented items and maintaining data on such transactions.  

Lastly, numerous financial 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. Multiple NSF fee practices may result in this heightened litigation risk.  

To reduce the potential risk of consumer harm and avoid potential violations of law regarding multiple re-presentment NSF fee practices, the FDIC outlined the following mitigation risks: 

  • Eliminating NSF fees.  
  • Declining to charge more than one NSF fee for the same transaction, regardless of whether the item is re-presented 
  • Conducting a comprehensive review of policies, practices, and monitoring activities related to re-presentments and making appropriate changes and clarifications, including providing revised disclosures to all existing and new customers.  
  • Clearly and conspicuously disclosing the amount of NSF fees to customers and when and how such fees will be imposed, including 
    • Information on whether multiple fees may be assessed in connection with a single
      transaction when a merchant submits the same transaction multiple times for payment;
    •  The frequency with which such fees can be assessed; and
    • The maximum number of fees that can be assessed in connection with a single
      transaction.
  • Reviewing customer notification or alert practices related to NSF transactions and the timing of 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 

For those institutions that self-identify re-presentment NSF fee issues, the FDIC expects supervised financial institutions to:  

  • Take full corrective action, including providing restitution to harmed customers, consistent with the restitution approach described in this guidance; 
  • Promptly correct NSF fee disclosures and account agreements for both existing and new customers, including providing revised disclosures and agreements to all customers;  
  • Consider whether additional risk mitigation practices are needed to reduce potential unfairness risks; and  
  • Monitor ongoing activities and customer feedback to ensure full and lasting corrective action. 

To read the Supervisory Guidance, please click here.