In recent months, regulators have issued multiple documents in the form of supervisory guidance and observations, raising concerns for community banks and credit unions. Notably, the October 2023 Supervisory Highlights from the Consumer Financial Protection Bureau (CFPB) addressed “unlawful junk fees” discovered in their supervision of financial institutions that are $10B and above. The areas of attention in deposit accounts include multiple fees on re-presented items and authorize positive/settle negative (APSN), among other things.
Multiple Fees on Re-Presented Items can occur when NSF items are re-presented after being returned to the originating financial institution. The CFPB recognized core processing systems are responsible for the assessment of fees on re-presented items. The Supervisory Highlights states, “Examiners concluded that, in the offering and providing of core service platforms, core processors engaged in an unfair act or practice by contributing to the assessment of unfair NSF fees on re-presented items.” It is unclear whether the CFPB will mandate that core processing systems implement technology to avoid assessing re-presentment NSF fees. However, they did comment that proper coding by originating financial institutions, in concert with core processing system solutions, will avoid the assessment of fees on re-presented items.
It was also reported that “financial institutions engaged in unfair acts or practices by charging consumers re-presentment NSF fees without affording the consumer a meaningful opportunity to prevent another fee after the first failed representment attempt.” As indicated in the Supervisory Highlights, the CFPB recognizes that only checks and (some) ACH items can be identified as re-presented items and recommends remediation of consumers for those identifiable re-presentment NSF fees.
APSN occurs when overdraft fees for debit card or ATM transactions are assessed where the consumer had a sufficient available balance at the time the consumer authorized the transaction, but the account balance becomes insufficient at the time of settlement due to the delay between authorization and settlement. Regulators have expressed concerns about the potential for APSN practices to lead to unanticipated overdraft fees for consumers.
To address the issue, financial institutions should consider technology solutions from their core processor that can avoid assessing fees for items authorized on a positive balance. Several core processors offer such capabilities—financial institutions can avoid regulatory criticism by implementing the necessary APSN technology.
Being ready for anything and everything is the best way to approach regulatory exams in this somewhat uncertain climate. Expect examiners will arrive with a longer checklist of questions about your overdraft program than in the past. To prepare for these examinations, review these tips:
In addition to implementing technology solutions and preparing for regulatory examinations, financial institutions can also consider implementing strategies to reduce consumer costs associated with overdraft fees. These strategies include:
While some financial institutions have heavily marketed their low or “eliminated” overdraft fees, that doesn’t necessarily mean your fee needs to change. Instead of making sweeping changes based on what others are doing, ask yourself, “What are our fees, and why were they set that way?” If you’ve raised your fees over time and now yours is higher than the rest in your market, maybe a change is needed. But if your account holders believe your overdraft fee is fair and you’re not having issues with unrecoverable losses, your fee may be appropriate.
More importantly, a thorough analysis of your program and fee structure will help uncover any necessary changes to ensure you’re offering a consumer-first overdraft solution.
For more on this topic, check out our webinar, “Overdraft Year in Review: Navigating Regulatory Expectations in 2024.”
To learn more about a consumer-first overdraft strategy or how to receive a complimentary evaluation, contact your local representative.
Cheryl Lawson serves as principal liaison for regulatory requirements of overdraft services, including consumer protection issues and strategies to enhance safety and soundness.
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