Avoiding multiple NSF fee pitfalls

The March 2022 FDIC publication, “Supervisory Highlights,” included a warning to banks regarding recent lawsuits and examination findings wherein banks have charged more than one NSF fee for the same transaction. This was particularly happening on returned checks re-presented for payment.

Banks should not be charging NSF fees when an item is presented more than once, unless your overdraft/NSF fee disclosures are extremely clear on that point.

If your disclosures are not extremely clear, it is considered a violation of Section 5 of the Federal Trade Commission Act, otherwise known as UDAP. It is considered both unfair and deceptive when you charge an NSF fee more than one time on the same item without giving the customer the appropriate disclosures and/or time to correct the problem. Banks found to be in violation have been asked to go back one to five years to make restitution to their customers. 

Depending on which systems your bank is using, re-presented items may require human intervention to be detected at all. And depending on the speed of the re-presentment, your customer communications to inform them of the negative account balance may not get to them quickly enough for the customer to bring the balance positive. 

So what can you do about it? 

Unless your system is sophisticated enough to detect multiple presentments, your only recourse is to make your overdraft and NSF fee disclosure very specific, letting customers know how an NSF fee will be applied to each presentment.

If your settlements clear through the Fed, there should only be one re-presentment. However if you clear through ECCHO, an item could be re-presented up to two times, doubling your exposure, if your disclosures are found to be lacking. 

Jeff Thompson, CRCM, is Vice President, Compliance Services Managing Consultant, for United Bankers’ Bank, Bloomington, Minn. Contact him at [email protected] or at 614-962-6528. For more information or to request a pricing proposal, visit the UBB website.