Mitigating risks: overdraft re-presentments and AP/SN transactions


Cheryl Lawson |

As I have been visiting community banks and credit unions across the nation, several questions have been posed to me. Here’s one that may offer some helpful guidance:

Are we still at risk of penalties and litigation even if we don’t offer a formal overdraft service?

Yes. Even if you do not offer a formal overdraft program, you are still subject to fines and penalties related to the assessment of fees due to multiple re-presentments and AP/SN.

Banking and credit union regulatory bodies have been taking a closer look at overdraft practices — specifically re-presented transactions and those that are “authorized positive, settled negative” (AP/SN).

An October 2022 Circular from the Consumer Financial Protection Bureau (CFPB) focuses on “unanticipated overdraft fee assessment practices,” which they define as occurring when:

“…financial institutions assess overdraft fees on transactions that a consumer would not reasonably expect would give rise to such fees. […] Even if a consumer closely monitors their account balances and carefully calibrates their spending in accordance with the balances shown, they can easily incur an overdraft fee they could not reasonably anticipate because financial institutions use processes that are unintelligible for many consumers and that consumers cannot control.”

This points directly to fees related to how your bank or credit union handles re-presented items and AP/SN transactions.

Regulatory expectations for overdraft program disclosures and fees

The CFPB signaled its intention to ramp up supervision around fair lending laws and unfair, deceptive and abusive acts and practices (UDAAP); other regulatory bodies have made similar announcements. In addition to closely examining decision-making practices in pricing, advertising and other areas, the Bureau examiners will look at other processes — as defined in your program disclosures — and the impact of fees.

So, even without a formal overdraft service, your bank or credit union may still face examiner scrutiny. Regulating bodies want financial institutions to address the issue proactively. This means a wait-and-see approach is not recommended.

Stay proactive about re-presentment and AP/SN risk to address current and future regulatory guidance

Many community financial institutions are lacking resources, be it time, staffing or expertise. Your compliance team has the extraordinary responsibility of managing the entire range of your products and services. The weight of this workload can leave little to no time for keeping up with the ever-changing best practices that examiners look for.

Having the appropriate resources in place to proactively address examiner expectations continues to be a common challenge in the industry.

If a shortage of time, staffing, or expertise is leaving a risky gap in your compliance efforts, an overdraft expert can help. After performing a deep dive into your financial institution’s overdraft practices — or lack thereof — you’ll get actionable recommendations and the assistance you need to bring your services in line with current regulatory expectations and best practices.

Having 100% compliance naturally strengthens your financial institution by providing transparent, useful, consumer-friendly services. And in today’s competitive environment, that’s both essential and priceless — for your institution and your account holders.

For answers to all your questions about maintaining a fully disclosed overdraft program, contact us.

To learn more, read, “Now Is The Time To Redefine Your Overdraft Strategy”



Cheryl Lawson has more than 30 years of experience in information technology and financial operations, as well as consulting, communications, training and project management. She serves as JMFA’s principal compliance liaison for regulatory requirements of overdraft services, including consumer protection issues, and strategies that enhance safety and soundness. To learn more about how to get more how to deliver a compliant and consumer-friendly overdraft service, contact us.


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