CFPB also is generally referring to certain kinds of fees in the consumer financial market as “junk” fees. The FDIC also recently issued guidance specific to NSF fees. The FDIC found that many financial institutions charge NSF fees on each attempt by a merchant or other payee to obtain payment pursuant to authorization from the payor. In the guidance, the FDIC warned financial institutions that charging such fees raises consumer compliance risk, third-party risk, and litigation risk. The FDIC suggested various risk mitigation practices, including changes to disclosures and substantive policies regarding such fees, and stated that financial institutions may face regulatory penalties for failure to “fully correct” such practices. The FDIC’s guidance was issued with respect to both consumer and business depositors. Building on the FDIC’s approach, at least one state regulator has issued guidance that such fees on representments should be phased out entirely.4 Previous Federal Regulatory Guidance on Overdraft and NSF Fees In the early 2000s, the federal banking regulatory agencies released the “Joint Guidance on Overdraft Protection Programs.”5 This guidance outlined a number of regulatory concerns and best practices. For example, the guidance noted that institutions should consider concerns relating to unfair or deceptive acts or practices (UDAP) when advertising and implementing overdraft protection services and also reminded financial institutions of the need to comply with the requirements of the Truth in Savings Act and the Electronic Funds Transfer Act regarding overdraft and NSF fees. Continued on page 20 Regulatory Scrutiny of NSF and Overdraft Fees By Tom Witherspoon, Michelle Fox, Jordan Ortmeier, Stinson LLP On Sept. 8, 2022, the Consumer Financial Protection Bureau (CFPB) issued a consent order requiring one financial institution to pay a $50 million penalty and to refund at least $141 million to consumers allegedly harmed by the bank’s overdraft practices.1 The bank’s overdraft fees, referred to by the CFPB as “authorizedpositive” fees, were charged on transactions that were authorized with a positive balance in the account but settled without sufficient funds to cover the transaction, resulting in an overdraft. The CFPB’s action follows the market trend of increased regulatory scrutiny of overdraft and non-sufficient fund (NSF) fees charged by financial institutions to their deposit customers. The CFPB’s order follows both the CFPB’s running series of blogs and studies of banks’ overdraft and NSF fee practices2 and the Federal Deposit Insurance Corporation’s (FDIC) recent guidance regarding multiple NSF charges on re-presentment transactions.3 The CFPB reports that revenue from such fees remains an important element of overall bank revenue for both small and large banks and that there is a concentration of charging such fees to a low percentage of bank customers. The blogs have highlighted the fact that small banks, to a greater extent than midsized to large banks, are recovering such fee revenue to pre-pandemic levels after a decline during the pandemic. The CFPB stated that its bank examination priorities are impacted by the extent to which financial institutions charge such fees. The CFPB indicates it will review settlement and funds availability procedures, the amount of such fees in comparison to costs incurred in overdraft and NSF scenarios, and whether the financial institution is implementing policies to limit such fees. In sum, the CFPB is reviewing both disclosure practices and substantive policies on such fees. In other recent publications, the September • October 2022 19
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