Guest Commentary By Tom Witherspoon, Michelle Fox, Jordan Ortmeier and Natalie Nelson, STINSON
A consent order issued by the Consumer Financial Protection Bureau in September 2022 required a bank to pay a $50 million penalty and refund at least $141 million to consumers allegedly harmed by the bank’s overdraft practices.1
Te overdraſt fees,
referred to as “authorized-positive” fees by CFPB, were charged on transactions authorized with a positive account balance but settled without sufficient funds to cover the transaction. CFPB issued a circular in October 2022 to the other federal banking regulators that such “authorized-positive” fees constitute an unfair act or practice.2
CFPB seems to be announcing such
fees are illegal, regardless of the extent to which the practice is disclosed in deposit account agreements. Its actions follow the market trend of increased regulatory scrutiny of overdraſt and nonsufficient fund fees charged by financial institutions.3
Te order and circular follow CFPB blogs and studies of overdraſt and NSF fee practices4
Regulatory Scrutiny
of Overdraft Fees, NSF
and updated guidance from
the Federal Deposit Insurance Corporation on multiple NSF charges on re-presentment transactions.5
CFPB reports revenue
from overdraſt and NSF fees remains an important element of overall bank revenue and that there is a concentration of charging such fees to a low percentage of customers. CFPB bank examination priorities are impacted by the extent to which financial institutions are charging such fees, and CFPB indicates it will review settlement and funds availability procedures, the amount of such fees in comparison to costs incurred in overdraſt and NSF scenarios and whether the financial institution is implementing policies to limit such fees.
FDIC found many financial institutions charge NSF fees on each attempt by a merchant or payee to obtain payment pursuant to an authorization from the payor. FDIC warned that charging such fees raises consumer compliance risks, third- party risks and litigation risk. FDIC suggested various risk mitigation practices, including changes to both disclosures and substantive policies, and stated financial institutions may face regulatory penalties for failure to “fully correct” such practices. At least one state regulator has issued guidance that NSF fees on re-presentments should be phased out entirely.6
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mobankers.com
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