FDIC Identifies Consumer Compliance Risks Associated with NSF Fees
Commentary by Steven Lofchie
The FDIC identified consumer compliance risks for financial institutions regarding the assessment of multiple non-sufficient funds ("NSF") fees arising from the re-presentment of the same unpaid transaction.
In an update to its 2022 "Supervisory Guidance on Multiple Re-Presentment NSF Fees," the FDIC highlighted potential risks arising from multiple re-presentment of NSF fees, including (i) violations of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices, (ii) quality control and oversight risks associated with the use of third parties, including core processors (which play an important role in payment processing), and (iii) litigation risk as a result of a financial institution’s failure to adequately disclose re-presentment NSF fee practices in their account disclosures.
To help financial institutions mitigate these risks, the FDIC outlined several risk-mitigating practices, including (i) eliminating NSF fees or limiting NSF fees for the same transaction, (ii) reviewing policies and procedures and customer notifications or alert practices regarding NSF transactions and (iii) clearly disclosing the amount and frequency of NSF fees to customers.
Commentary
There could not be a more obvious example of regulation by enforcement. Rather than telling banks what the enforcement "risks" are, the regulators should tell banks what the rules are. If there are no rules, the FDIC should propose them.