The National Credit Union Administration (NCUA) issued a warning to credit unions about overdraft and non-sufficient funds (NSF) fee practices that may violate consumer protection laws. The agency described practices that create reputational, compliance, and legal risks for institutions and potential unavailable harm for consumers.
In a letter to covered institutions, NCUA Chair Todd Harper advised examples of common practices that may violate the Federal Trade Commission Act (FTC Act) and the Consumer Financial Protection Act (CFPA), including unanticipated fees, based on examination findings over the past two years. The chair’s letter included recommendations from the Consumer Financial Protection Bureau (CFPB), which issued a final rule on overdraft fees earlier this month.
“Unanticipated overdraft fees occur when a credit union assesses overdraft fees on transactions that a member would not reasonably expect would give rise to such fees,” Harper wrote. “Though credit unions are required to provide disclosures related to their transaction processing and overdraft fee policies, these processes and policies can be complex. Research published by the CFPB suggests that, despite such disclosures, customers and members of depository institutions, including credit unions, face uncertainty about when transactions will be posted to their account and whether they will incur overdraft fees.”
The NCUA identified several problematic practices, including “authorize positive, settle negative” (APSN) fees. Harper described APSNs as overdraft fees assessed on debit card transactions that initially appear to be covered but settle with insufficient funds due to intervening transactions. He noted some credit unions have been found to charge multiple NSF fees for the same transaction each time it is represented for payment.
“Charging APSN overdraft fees when members would not reasonably anticipate them because they had a sufficient balance at the time the credit union authorized the payment is likely unfair under both the FTC Act and the CFPA,” Harper wrote. “Also, credit unions with core processing systems unable to identify APSN transactions that result in a fee, even though such fees may have been disclosed to the member in advance, have heightened third-party and reputation risk.”
He noted similar concerns over blanket policies for returned deposited item (RDI) fees, which penalize credit union members for circumstances beyond their control, such as checks that fail to clear due to insufficient funds in the originator’s account.
Additionally, Harper advised institutions to avoid other unscrupulous, high-risk practices related to excessive daily fee limits, misleading disclosures about overdraft policies, and structuring transaction orders to maximize fees. These practices increase costs for members and expose credit unions to compliance and reputational risks, according to the NCUA.