utah.bank 8 Assessment of non-sufficient funds fees (NSF) on representments of items, such as Automated Clearing House (ACH) withdrawals and checks, have been a heightened risk issue for financial institutions. While this is not a new issue because checks have been represented for decades, the volume of electronic transactions over that same period has drastically increased. The lack of clarity around how much one bill hitting a consumer’s account could cost them in a negative balance situation creates the heightened risk for unfair, deceptive, or abusive acts or practices (UDAAP). The FDIC noted this information in the March 2022 Supervisory Highlights; however, on Aug. 18, 2022, a Financial Institution Letter (FIL), Supervisory Guidance on Multiple Representment NSF Fees1, was issued. In the FIL, the FDIC notes the issuance of this guidance presents an elevated risk of violations of law and harm to customers. The guidance outlines the consumer compliance, third-party, and litigation risks associated with the handling of NSF and provides for several risk management procedures to assist institutions in minimizing the risks related to potential unfair or deceptive practices. Based on these areas outlined, there are a few takeaways institutions need to be prepared for regarding representments: 1. Account Disclosures – Deposit account disclosures, such as terms and conditions, truth in savings disclosures, and RECENT DEVELOPMENTS IN NSF REPRESENTMENTS By Shaun Harms, Principal, FORVIS fee schedules, must be updated to show that representments of items can occur and could result in multiple fees to the customer. 2. Unfair Practices – The FDIC specifically noted that while revising disclosures may address the risk of deception, doing so may not fully address the unfairness risk of assessing NSF fees on the same item represented multiple times. This means the disclosure change alone may not be the full solution for this issue, more of a bandage for now. 3. Third-Party Risk – Third parties, including core processors, often play significant roles in processing payments, such as identifying and tracking represented items and providing systems that determine when NSF fees are assessed. Such third-party arrangements may present heightened UDAAP risk if not properly managed. Institutions are expected to maintain adequate oversight of third-party activities and appropriate quality control over products and services provided through third-party arrangements. When a utility bill payment, for example, is presented up to four times by the utility company’s processor of batch ACH transactions, it could result in four charges to the customer. That could significantly impact the average consumer who does not understand or realize they can be charged multiple times for the same utility bill, and institutions need to identify any risks or controls they can put in place. Industry system providers in this
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