The FDIC is issuing guidance to FDIC-supervised institutions to address certain consumer compliance risks associated with the assessment of multiple insufficient funds (NSF) charges arising from the resubmission of the same unpaid transaction. Additionally, the FDIC shares its approach to monitoring when a legal violation is identified, as well as expectations for comprehensive remedial action.

See the attached watchdog guidelines on NSF’s fees for multiple performances for more information.

Statement of applicability: The content and material referenced in this IDF apply to all financial institutions supervised by the FDIC.

Strong points:

  • Many financial institutions charge NSF fees when checks or Automated Clearing House (ACH) transactions are presented for payment, but cannot be covered by a customer’s transaction account balance. After being declined, merchants can then resubmit the transaction for payment.

  • Some financial institutions charge additional NSF fees for the same transaction when a merchant resubmits a check or ACH transaction multiple times after the original unpaid transaction has been declined. In these situations, there is a high risk of violation of the law and harm to consumers.

  • The FDIC has identified violations of the law when financial institutions charged multiple NSF fees for resubmission of unpaid transactions because the disclosures did not fully or clearly describe the financial institution’s representation practice, including not explaining not that the same unpaid transaction could result in multiple NSF Fees if an item was presented more than once.

  • Practices involving the charging of multiple NSF fees arising from the same unpaid transaction result in increased risks of violations of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits Unfair or Deceptive Acts or Practices (UDAP). Third parties, including core processors, often play an important role in processing payments, identifying and tracking re-submissions, and providing systems that determine when NSF charges are assessed. These third-party agreements can also present risks if not properly managed. There may also be an increased risk of litigation. Numerous financial institutions, including some FDIC-supervised institutions, have been subject to class action lawsuits alleging breach of contract and other claims due to failure to adequately disclose NSF expense practices in their account disclosures.

  • Financial institutions are encouraged to review their practices and disclosures regarding the imposition of NSF fees for represented transactions. The FDIC has observed certain risk mitigation practices implemented by financial institutions to reduce the risk of consumer harm and potential breaches.

  • The FDIC will take appropriate action to address consumer harms and violations of law in carrying out its oversight and enforcement responsibilities regarding NSF expense practices.

NSF Fee Oversight Guidelines for Multiple Representations

Related topic:

Compliance/consumer protection