FDIC Says Banks Charging Multiple NSF Fees on Same Transaction Could Violate Law

The Federal Deposit Insurance Corp. (FDIC) recently warned banks it supervises that it will consider enforcement action if they charge multiple nonsufficient-fund (NSF) fees on the same transaction, stating that it could violate the Federal Trade Commission Act.

“The FDIC found that some disclosures provided to customers did not fully or clearly describe the institution’s re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees if an item was presented more than once,” said the agency, according to American Banker.

NSF fees are charged when a debit card purchase is declined or when a check bounces, while overdraft fees are levied when a bank covers purchases for consumers, and consumers have to opt in to overdraft fees.

Citigroup and PNC have stopped charging NSF fees, and four more of the nation’s biggest banks are anticipated to stop charging them by the end of the year, leaving only three holdouts: Huntington, MUFG Union Bank, and SVB Financial.

Ballard Spahr noted that the FDIC discussed three primary risk categories: consumer compliance risk, third-party risk, and litigation risk. The agency listed risk-mitigating activities for financial institutions like reviewing practices and policies, clearly disclosing NSF fee amounts, and reviewing customer notification practices surrounding NSF fees.

The FDIC said that NSF fees could be deceptive if “disclosures do not adequately advise customers of this practice.” They also said the fees could be unfair if charged before customers have a chance to deposit enough money in their accounts.

By eliminating NSF fees and declining to repeatedly charge them in the same transaction, the agency said banks could mitigate the risks of legal action. The FDIC will evaluate enforcement actions, including restitution and civil money penalties where appropriate.