Pub. 13 2022 Issue 3

NSF Fees: Prepare For a New Regulatory Focus

Financial institutions have long assessed customers a nonsufficient funds (NSF) fee when a check or Automated Clearinghouse (ACH) transaction is presented for payment on a customer’s account, and the customer has insufficient funds in the account to pay the check or ACH. There is little regulation related to NSF fees, and the regulatory review standards related to the NSF process have long been stable. However, the regulatory approach to NSF fees appears to be changing.

On Aug. 18, 2022, the Federal Deposit Insurance Corporation (FDIC) issued “Supervisory Guidance on Multiple Re-Presentment NSF Fees” (Guidance).1 The Guidance articulates the FDIC’s focus on re-presentment NSF fees. Re-presentment occurs when a merchant or other payee in a transaction learns that a check or ACH has been declined and resubmits the check or ACH for payment. The Guidance addresses potential risks related to multiple re-presentment fees, suggests risk mitigation practices, and articulates the FDIC’s supervisory approach.

Potential risks from multiple re-presentment NSF fees
The FDIC identifies three primary risks related to re-presentment practices: consumer compliance, third party, and litigation.

  • Consumer compliance
    The primary consumer compliance risks identified in the Guidance are the potential violation of the subjective standards for “deceptive practices” and “unfair practices” defined in Section 5 of the Federal Trade Commission (FTC) Act. The Guidance also identifies the potential for “abusive” acts or practices defined in Section 1036(a)(1)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Evaluating compliance will begin with assessing the bank’s disclosures related to re-presentment NSF fees. However, the Guidance suggests that unfairness violations may be found even if the disclosure is not found to be deceptive.

  • Third-party risk
    The FDIC acknowledges that third parties, including core processors, may be deeply involved in identifying and tracking re-presented items and providing systems that determine NSF fee assessment. The FDIC stresses that responsibility for the third-party vendor remains with the bank. Banks are encouraged to review the third-party vendor NSF processing settings and the vendor capability to identify and track re-presented items.
  • Litigation risk
    The Guidance notes that some FDIC-supervised institutions have faced lawsuits alleging breach of contract and other claims because of alleged failures by an institution to adequately disclose re-presentment NSF practices in account disclosures. The associated costs have been customer restitution and legal fees.

Risk Mitigation Practices
The Guidance recommends that banks review their practices and disclosures related to charging NSF fees for re-presented transactions. The Guidance also details a list of mitigation measures banks may consider in reducing the risks of consumer harm and potential violations of law related to multiple re-presentment NSF fee practices.

FDIC’s Supervisory Approach
The Guidance states that the FDIC’s supervisory response to re-presentment of NSF practices will focus on identifying related issues and ensuring both correction of deficiencies and remediation to harmed customers. The FDIC will consider a bank’s proactive efforts to self-identify and correct violations in determining whether to cite a bank for unfair or deceptive practices. The FDIC also indicates that its evaluation of whether a bank has met its remediation obligations will be based upon the bank’s ability to retrieve, review, and analyze re-presentment data.

The Guidance suggests a supervisory emphasis by the FDIC in evaluating how NSF practices and procedures may present unfair or deceptive practices. While the Guidance does not have the force and effect of law and the recommendations contained therein are not mandatory, it does indicate how the FDIC proposes to enforce other laws. All banks, including those that have not changed their NSF practices since a prior satisfactory compliance examination, should expect that their NSF procedures will be scrutinized.

Banks should carefully consider the recommendations contained in the Guidance as they evaluate the risks associated with their NSF practices. Evaluating whether re-presentment NSF fee practices potentially violate regulatory standards may require examining many factors and exercising informed judgment regarding the subjective standards discussed in the Guidance. 

Mark Mangano is Counsel with Jackson Kelly, PLLC. Mark is a former community bank CEO and owner. He focuses his practice on assisting clients with strategic planning, corporate governance, banking regulation, vendor management, and mergers and acquisitions. Contact Mark at 304-670-0441 or