The FDIC today rescinded a 2023 financial institution letter that had stated that banks’ charging representment nonsufficient funds fees may be a deceptive or unfair practice under section 5 of the Federal Trade Commission Act.
When a merchant submits a check or an Automated Clearing House transaction initiated by a customer, and the customer’s account does not have sufficient funds to cover the payment, the bank may return the item to the merchant and charge an NSF fee. The fee covers the cost to process the return and serves as a penalty to encourage responsible deposit account management. A merchant has the right to resubmit the transaction to the bank with the expectation that the customer will have money in his account so that the transaction will be paid. If the account balance remains insufficient to pay the transaction, the bank may return it a second time and charge another NSF fee. A bank has no control over whether, or when, a merchant resubmits a transaction.
In 2021, FDIC examiners began scrutinizing account disclosures to determine whether they adequately – in the judgment of the examiner or agency – informed consumers that they could be charged representment NSF fees. If not, the FDIC began citing banks for a “deceptive” act or practice under section 5 of the FTC Act. In the FIL issued in 2023, the FDIC also stated that charging representment NSF fees also could be an “unfair” act or practice.
The American Bankers Association has long expressed concern with the FDIC’s scrutiny of representment NSF fees and issuance of the FIL. In a 2024 letter to the FDIC, ABA urged the FDIC to rescind the FIL, asserting that the “FDIC has established binding rules for banks without statutory authority, and without undergoing the [Administrative Procedures Act’s] rulemaking process.”
