NCUA Warns Credit Unions on Overdraft and NSF Fees

The National Credit Union Administration ("NCUA") alerted credit unions to "heightened reputational, consumer compliance, third-party, and litigation risk" risks associated with overdraft and non-sufficient funds ("NSF") fees.

In a Supervisory Notice to Boards of Directors and Chief Executive Officers of federally insured credit unions, the NCUA warned that overdraft and NSF fees that "members cannot reasonably anticipate or avoid" may constitute unfair or deceptive acts or practices under Section 5 of the Federal Trade Commission Act and Section 1031 ("Prohibiting unfair, deceptive, or abusive acts or practices") and Section 1036 ("Prohibited Acts") of the Consumer Financial Protection Act.

The NCUA outlined areas of concern, including:

• charging fees on debit card transactions authorized when sufficient funds were available but settled when the account was overdrawn.
• assessing multiple fees on the same transaction when it is re-presented for payment.
• imposing fees on members for returned checks over which they have no control.
• applying high or no daily limits on overdraft or NSF fees.
• providing unclear or incomplete information on fee practices.
• structuring the sequence of transaction processing to maximize overdraft fees.

To mitigate the risks, the NCUA recommended that credit unions evaluate their fee practices, update disclosures and consider offering features such as linked savings accounts or small-dollar credit options. The NCUA stated that proactive steps to address customers harm and self-identify violations before regulatory examinations will reduce the likelihood of enforcement actions.