Continued from page 19 In 2010, the FDIC issued further guidance on risks associated with overdraft payment programs and compliance with consumer protection laws.6 For the assessment of multiple fees, this guidance focused on implementing limitations on such fees on particular transactions over daily time periods and annually. Specifically, the FDIC recommended that financial institutions undertake meaningful follow-up communication if a customer overdraws on his or her account on more than six occasions in a rolling 12-month period. Both issuances of guidance showed the heightened attention of regulators at the time to protect depositors regarding overdraft and NSF fee practices and disclosures. What Constitutes Unfair and Deceptive Practices? The banking regulators are analyzing such fees under their UDAP/UDAAP authority. Section 5 of the Federal Trade Commission (FTC) Act, which is enforceable by the FDIC, the Office of the Comptroller of the Currency and the Federal Reserve System as a regulator of member banks, generally prohibits unfair or deceptive acts or practices (UDAP). The Dodd-Frank Act also gave the CFPB authority to take action against unfair, deceptive or abusive acts or practices (UDAAP). Regarding multiple NSF charges, recent guidance from the FDIC indicates that the issue of a deceptive practice often turns on 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 will be charged to customers, the omission of this information may be considered a deceptive practice under Section 5. In addition to adequate disclosures, the FDIC will also measure the fairness of the transaction by examining whether customers are given transparent notice of the multiple fees. This appears to also include an opportunity for customers to ensure their accounts can cover subsequent attempts by merchants to obtain payment on the transaction prior to being charged additional fees. The regulators also appear poised to attempt to take action against certain fees as being substantively unfair, regardless of being disclosed. Financial institutions may need to self-identify and correct certain practices before their next examination. This may include looking back at payment- and fee-related data and deciding the best course of action. www.coloradobankers.org 20
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