The Federal Deposit Insurance Corp. (FDIC) rescinded a 2023 guidance issued for banks charging representment nonsufficient funds (NSF) fees, clarifying certain practices that could be deemed unfair or deceptive under Sec. 5 of the Federal Trade Commission (FTC) Act.
The rescinded guidance was Financial Institution Letter (FIL-32-2023), titled FDIC Clarifying Supervisory Approach Regarding Supervisory Guidance on Multiple Re-Presentment NSF Fees. Specifically, the guidance was meant to address scenarios in which a consumer was charged multiple times for the same unpaid transaction.
The guidance applied to merchants when submitting a check or an Automated Clearing House (ACH) transaction initiated by a customer, and the customer’s account lacked sufficient funds to cover the payment. The merchant’s bank would then often supply funds to cover the processing costs and be reimbursed by an NSF fee charged to the consumer.
After review, the agency determined the FIL to be “overly broad in scope” and asserted that it had “raised uncertainty regarding when, for instance, disclosures regarding re-presentments may result in ‘unfairness’ concerns” as defined by the FTC Act.
The FDIC advised supervised financial institutions that the rescission was effective immediately, as of April 13. The agency also stated that “[s]upervised institutions to ensure their disclosures to consumers accurately reflect their practices and are provided in accordance with applicable laws, regulations, and other current legal requirements.”
At the time of its issuance, FIL-32-2023 was intended as an updated version of FIL-40-2022, titled the Supervisory Guidance on Multiple Re-Presentment NSF Fees, which outlined steps taken by financial institutions to remediate consumer harm associated with re-presentment fees. The FDIC utilized the data collected from these institutions in attempting to assess the consumer harm associated with the issue at particular institutions and ongoing and extensive challenges in accurately identifying harmed parties.
Based on the additional information collected, the FDIC saw fit at the time to update and reissue the guidance as FIL-32-2023 to reflect its new supervisory approach under which it would not request for an institution “to conduct a lookback review absent a likelihood of substantial consumer harm.”
“Practices involving the charging of multiple NSF fees arising from the same unpaid transaction results in heightened risks of violations of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices (UDAP),” the guidance stated. “While specific facts and circumstances ultimately determine whether a practice violates a law or regulation, the failure to disclose material information to customers about re-presentment and fee practices has the potential to mislead reasonable customers, and there are situations that may also present risk of unfairness if the customer is unable to avoid fees related to re-presented transactions.”
With the rescission of the updated guidance, supervised institutions will once again be expected to avail themselves of best practices outlined in FIL-40-2022.
The American Bankers Association (ABA) previously urged the FDIC to support for this rescind the guidance in a letter to agency leadership in 2024. The ABA asserted that merchants have the right to resubmit a transaction to the bank with the expectation that the customer will have enough money in their account to pay for the transaction.
The trade group accused the FDIC of violating the Administrative Procedures Act (APA) at the time for issuing the guidance without holding a “notice and comment” period during which stakeholders could weigh in on the matter.
“In 2021, the FDIC established new expectations – effectively changing existing law – regarding NSF fees through a Financial Institution Letter issued in August 20222 (FIL) and revised in June 2023.”