The Federal Deposit Insurance Corporation (“FDIC”) on August 18, 2022 issued updated Supervisory Guidance on banks assessing multiple re-presentment fees against customers’ accounts. This follows the March 2022 FDIC Consumer Compliance Supervisory Highlights, which also raised similar concerns. The guidance focuses upon banks that charge a fee each time an item is presented and then returned. If insufficient funds (“NSF”) fees are being assessed by the bank, this is generally the default setting for most core processor systems (and often cannot be changed). The guidance raises two significant issues, both under the prohibition on unfair and deceptive acts and practices (“UDAP”) in Federal Trade Commission Act (“FTC Act”). In addition, both of these claims presumably would serve as a basis for a claim under the prohibition on unfair, deceptive, and abusive acts and practices (“UDAAP”) under the Dodd-Frank Act.   

First, the FDIC notes that many banks are not adequately disclosing how they assess their NSF fees. In particular, these banks are not clearly describing that an NSF fee will be assessed for each presentment, as opposed to being assessed for each item. The FDIC concludes that a lack of clarity could serve as a basis for a claim that the bank is engaging in deceptive practices—a basis for a claim under UDAP (and presumably UDAAP).

Second, and most importantly for many banks, the FDIC notes that — even if the disclosure is clear — the assessment of multiple NSF fees may still constitute an unfair practice. The FDIC reasons that charging multiple NSF fees in a short time period would effectively prevent a customer from bringing the account positive and avoiding the ongoing fees. The FDIC notes that “[w]hile revising disclosures may address the risk of deception, doing so may not fully address the unfairness risks.” 

There are a number of key takeaways from this guidance:

• This will likely embolden plaintiffs in ongoing lawsuits against banks relating to their overdraft and NSF practices.
• This guidance should be read both as a warning about the FDIC’s position and a basis for the CFPB to assert UDAAP violations.
• Banks should carefully review and understand how NSF and overdraft fees are assessed against customers and review what options (if any) they have with their core processing system providers.
• Banks should carefully review their overdraft and NSF disclosures with their outside counsel and compliance professionals.
• Banks should carefully review any outside vendor relationships when those third parties are involved in managing or advising on an overdraft or NSF program.
• Banks should understand the scope of their overdraft and NSF programs so that any tail risk can be quantified for management and the Board of Directors.

To date, Nelson Mullins has advised dozens of banks relating to ongoing changes to their overdraft, NSF, and return programs and the changing positions of prudential regulators. We are aware of banks receiving questions from prudential examiners relating to their overdraft and NSF fee practices and view this as a high priority for bank compliance personnel. Many times, the clients have clear disclosures and conservative practices. However, for those banks that may be experiencing some level of risk in light of this guidance, the firm — and its Assureg consulting division — are helping banks perform transaction back-testing, fee assessment reconstructions, and remediation programs related to these historic overdraft and NSF programs.