The New Era of "Disclosing It Isnt Enough" - WST

By now, perhaps you have read the FDIC FIL-19-2023 and OCC Bulletin 2023-12 both dated April 26, 2023, addressing “authorize positive, settle negative” (APSN) transactions and representment fees. And if you haven’t, well it sure makes for an interesting read! When the guidance is basically telling you that it doesn’t matter if you’ve already thoroughly and conspicuously (and maybe even repeatedly!) disclosed your fees to consumers such fees may still be viewed as unfair and harmful – well then you know it’s time to move review of your institution’s overdraft practices to the top of the priority list.

In a nutshell, the guidance notes that failure to take steps to avoid assessing overdraft related fees for APSN puts financial institutions at risk of violating Dodd-Frank UDAAP, which prohibits engaging in any unfair, deceptive or abusive acts or practices in connection with a consumer financial product or service. An act or practice is unfair when it (1) causes or is likely to cause substantial injury to consumers, (2) cannot be reasonably avoided by consumers and (3) is not outweighed by countervailing benefits to consumers or to competition.

Regulators are saying since consumers cannot effectively control the timing of the settlement of transactions or the item being re-presented, the fees charged for APSN and representments may be unanticipated and unavoidable and, as such, can cause substantial injury to the consumer. If your institution uses a third-party in processing transactions, identifying and tracking balances, and providing information when fees can be assessed, the guidance also discusses the importance of managing the risks of using third party systems involved in this process.

What should we do to mitigate our risks here, you ask? That’s the million-dollar question (no pun intended - institutions can be assessed significant civil money penalties for UDAAP violations). Here are a few recommendations to consider:

We encourage all financial institutions to read the overdraft guidance issued during the past year and the CFPB’s recent Policy Statement on Abusive Acts or Practices. Links are provided below for your reading pleasure.

https://www.fdic.gov/news/financial-institution-letters/2023/fil23019.html

https://www.occ.treas.gov/news-issuances/bulletins/2023/bulletin-2023-12.html

https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/

Authored by: Melanie Fletcher CRCM, CAMS, CCBIA, CCBP, AAP