Executive Letter: Review and Act on Deposit-related Activities FDIC Has Identified as Potential UDAAP

Rose Oswald PoelsBy Rose Oswald Poels

In recent conversations with state bankers associations across the country, as well as bankers here in Wisconsin, it is clear that regulators, particularly the Federal Deposit Insurance Corporation (FDIC), are very focused on certain deposit-related activities citing them as violations in examinations, and also identifying them as potential unfair, deceptive, or abusive acts or practices (UDAAP) violations. As a result, I want to highlight these concerns again for the membership as a follow-up to my April 5 Executive Letter e-pub.

In that document, I shared information about how FDIC has identified (a) the assessment of overdraft fees for “force pay” transactions and (b) charging multiple non-sufficient funds fees (NSF fees) for the same transactions presented multiple times against insufficient funds as deposit-related activities which FDIC believes may result in a heightened risk of violations of UDAAP. In that same publication, I made recommendations to help banks take action.

In Wisconsin, as in other states, current FDIC compliance examinations include a review of disclosures and charges for these activities. FDIC examiners have been aggressive with their new interpretations, and time is of the essence for banks to act. In some cases, WBA understands that banks receiving these violations are told to go back at least 12 months to determine consumer harm.

With FDIC adopting a new interpretation that disclosing that one NSF fee would be charged “per item” or “per transaction” is not clearly defined and does not explain that the same transaction might result in multiple NSF fees if re-presented, banks should review disclosures to determine whether FDIC’s new interpretation affects the bank. If it does, banks should revise disclosure language accordingly and consider other risk-mitigating steps as outlined by FDIC in the recent publications included in the April 5 Executive Letter.

A bank needs to also understand its actual presentment process and whether it has any ability or inability to identify items resubmitted by a merchant for payment. Review should also include whether the bank can track or identify when a check — presented in physical form the first time — is represented as Automated Clearing House (ACH) the second time by the merchant. Banks should be prepared to explain to examiners their processes and any operational and system limitations in the ability to identify represented items or to trace items if an item was converted when represented.

With respect to the issue of assessing overdraft fees for “force pay” transactions, if a “no pay” bank used the Regulation E model Form A-9 to solicit a consumer’s authorization or opt-in to assess overdraft fees for ATM and one-time point-of-sale (POS) debit card transactions in “force pay” transactions, that model form should not be used in that manner. It was not intended for such transactions. In such situations, banks should review how best to disclose their practice for “force pay” transactions with their counsel.

Failure of a bank to take action will likely result in FDIC citing a UDAAP violation and potentially imposing consumer reimbursement of charges in connection with these deposit-related activities.