Unfair? Deceptive? Unlawful? The Battle Over NSF Fees for Re-presentments

Unfortunately, consumers occasionally have ACH transactions or checks presented against their bank account when their account doesn’t have the money to cover that presentment.  Financial institutions commonly charge a non-sufficient funds (NSF) fee in these instances when charges are presented but cannot be covered by the balance in the account.  These fees are typically disclosed in the account agreement as being charged, “per item,” or “per transaction.”  If you’ve been hearing troubling things about this process and these fees, you’re not alone.

In the normal course of business, after having these ACH transactions or checks declined merchants will often re-present the charges.  The NACHA rules allow two retries following an initial return, for a total of up to three attempts to present a particular ACH transaction.  Federal regulations do not limit the number of times a check may be re-presented for payment, but it is common for it to be re-presented two or three times as well.  Although not done by all financial institutions, it has been commonplace in the industry for institutions to charge NSF fees for each re-presentment of the charge.  Either practice has historically been acceptable, and federal regulation does not contain an express prohibition against charging NSF fees for re-presentments.

There are three separate issues that are currently being scrutinized regarding these NSF re-presentment fees: 1) whether account agreements have clearly stated that a separate NSF fee may be charged for each re-presentment, and if not whether that constitutes a breach of contract, 2) whether this potentially unclear language in an account agreement constitutes a deceptive practice and 3) whether the practice of charging multiple NSF fees for the same transaction is an inherently unfair practice.

Not only are there are pending class action lawsuits against banks regarding the above issues, the FDIC discussed this issues in the Spring 2022 Consumer Compliance Supervisory Highlights, and the CFPB published a blog post regarding the issues.  At present a lot of these issues have yet to be resolved, leaving a lot of questions unanswered.

Additionally, we’re hearing unusual stories from our members about their examinations and how this issue is affecting them.  In one such example a bank that had already updated their disclosures and fee schedules to clarify when fees would apply was told early in the exam that if they were to issue refunds for re-presented items, the bank would not be cited for a UDAP violation.  Subsequently the territorial manager indicated that the bank might get the UDAP violations regardless and if so, then issuing refunds would be voluntary.  In another example a bank proactively changed their disclosures to clarify fees, and it ultimately made the matter worse during the exam.  In yet another example a bank was criticized for not taking action to change their disclosures and provide greater clarity about these NSF re-presentment fees.

On the other side of this issue are financial institutions and their operational concerns.  Depending on how a transaction is coded there may be no way to know with certainty that the re-presented transaction had been previously presented for payment.  For example, the NACHA rules require the use of the code “Retry Pymt” for re-presentments.  However, many core systems lack the functionality to run alerts in a manner to identify these resubmitted transactions.  In addition, many ACH re-presentments are made using other codes.  Regarding checks, there doesn’t seem to be a way for most institutions to automate a search to identify re-presented checks, so any such searches would need to be done manually.  A further challenge is that a check can be resubmitted as an ACH transaction, further complicating the process of trying to identify re-presented charges.