WHAT CONSTITUTES UNFAIR AND DECEPTIVE PRACTICES Te banking regulators are analyzing such fees under their UDAP/UDAAP authority. Section 5 of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices, and the Dodd-Frank Act also gave CFPB authority to act against unfair, deceptive or abusive acts or practices.


In relation to multiple NSF charges, FDIC guidance indicates the issue of a deceptive practice oſten turns on the related deposit account disclosures. If a financial institution charges multiple NSF fees but fails to clearly and conspicuously disclose the scenario in which such fees are charged to customers, the omission of this information may be considered a deceptive practice under Section 5. In measuring the fairness of the transaction, FDIC also will examine whether customers are given transparent notice of the multiple fees. Tis appears to include an opportunity for customers to ensure their accounts can cover subsequent attempts by merchants to obtain payment on the transaction before being charged additional fees.


Given the CFPB’s recent actions involving “authorized- positive” overdraſt fees, the regulators also appear poised to take action regarding certain fees as being substantively unfair, regardless of the extent to which they are disclosed.


THIRD-PARTY OVERSIGHT Many financial institutions rely on third parties for a myriad of transaction elements, including processing customer payments and providing systems that determine when NSF fees and overdraſt fees are assessed. Many rely on third parties to provide “form” deposit account disclosures. FDIC reiterated the need to maintain oversight over these third-party activities. Financial institutions are responsible for regulating risks to customers through third-party transactions to the same extent as if they were handled in-house. Failure to properly manage and mitigate risks to customers when using third-party services could result in regulatory issues.


PREVENTIVE ACTION To avoid the growing risk of litigation and regulatory issues, at a minimum, financial institutions should conduct a thorough review of their internal and third-party NSF and overdraſt programs and customer-facing disclosures to gauge compliance with the current regulatory climate. Te focus of such a review should ensure disclosures are sufficient, including multiple fees, frequency and maximum number of fees charged. Tese revised disclosures must be provided to customers.


Another compliance element is the transparency necessary for notifying customers when such a fee will be charged. Financial institutions also should consider how to provide customers the opportunity to restore their accounts to a positive balance to avoid such fees.


Financial institutions also may need to self-identify and correct certain practices before their next exams. Tis may include looking back at payment- and fee-related data and deciding on the best course of action going forward. Financial institutions also should examine their policies and practices regarding such fees to see if any changes can be made. Tis does not appear to be a litigation and regulatory issue that will subside any time soon.


1 consumerfinance.gov/about-us/newsroom/cfpb-orders-regions-bank-pay-


191-million-for-illegal-surprise-overdraſt-fees/ 2


consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-to-help-


banks-avoid-charging-illegal-junk-fees-on-deposit-accounts/ 3


CFPB issued a compliance bulletin about returned deposited item fees,


stating that “[b]lanket policies of charging Returned Deposited Item fees to consumers for all returned transactions irrespective of the circumstances or patterns of behavior on the account are likely unfair.” https://files. consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee- assessment-practice_compliance-bulletin_2022-10.pdf 4


See, e.g., consumerfinance.gov/about-us/blog/banks-overdraſt-nsf-fee-


revenues-evolve-along-with-their-policies/ 5


fdic.gov/news/financial-institution-letters/2022/fil22040a.pdf 6 dfs.ny.gov/industry_guidance/industry_letters/il20220712_overdraſt_nsf_fees


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