WASHINGTON — The
The agencies agree that one practice in particular — "authorize positive, settle negative," or APSN — borders on deception, and they offered guidance on how banks can keep their overdraft policies in compliance. The OCC also identified three additional types of overdraft fees as risky: representment, periodic and unlimited.
The OCC and FDIC say that banks that charge overdraft fees on APSN transactions — transactions that are authorized when a consumer's available account balance is positive but later post to the account when the available balance is negative — are potentially violating rules because the complexity of transaction settling makes it hard for consumers to reasonably anticipate or prepare for such fees, even when banks ostensibly inform customers of such practices.
"Even when disclosures described the circumstances under which consumers may incur overdraft fees, the OCC has found that overdraft fees charged for APSN transactions are unfair for purposes of Section 5 because consumers were still unlikely to be able to reasonably avoid injury and the facts met the other factors for establishing unfairness," the regulators said in a statement. "[These practices] may result in heightened risk exposure, including the risk of violating section 5 of the Federal Trade Commission [FTC] Act … and Section 1036 of the Consumer Financial Protection Act of 2010, which prohibit unfair, deceptive, or abusive acts or practices."
The FDIC also expressed concern about APSN potentially violating Section 5 of the FTC Act and added that APSN transactions also ran afoul of certain Dodd-Frank Act rules.
The agencies encouraged institutions to review their overdraft fee practices on APSN transactions and others to be sure they are not charging customers overdraft fees for transactions customers may not anticipate or otherwise avoid.
While the FDIC only addressed APSN transactions, the OCC provided additional examples for practices the agency sees as potentially violating rules. So-called representment fees, assessing an additional fee each time a third party resubmits the same transaction for payment after a bank returns the transaction for nonsufficient funds, may also violate rules, OCC warned.
"[Banks'] disclosures may be deceptive, for purposes of Section 5, if they do not clearly explain that multiple or additional fees (NSF or overdraft) may result from multiple presentments of the same transaction," they noted. "Even when customer disclosures explain that a single check or ACH transaction may result in more than one fee, a bank's practice of assessing fees on each representment may also be unfair, for purposes of Section 5, if consumers cannot reasonably avoid the harm and the other factors for establishing unfairness under Section 5 are met."
The OCC added that charging overdraft or NSF fees with a high limit or without limits for multiple transactions on a single day, and charging a fixed, periodic fee for failure to cure a previous overdrawn balance are two additional practices that appear unfair or deceptive.
To avoid violations and penalties, the OCC said banks should help ensure any overdraft costs customers bear are proportional to the face value of the original product, the quantity of their regular deposits, and their average account balances. They also say that banks need to implement fees and practices that bear a reasonable relationship to the price banks pay to provide such overdraft protection program services.
The Consumer Financial Protection Bureau has
"The OCC encourages banks to have processes in place to identify and correct risk management weaknesses and violations of laws and regulations," it wrote in its notice. "OCC violation findings at specific banks related to overdraft protection programs have typically led to corrective action, including remediation to harmed consumers."
The FDIC struck a similar tone, saying that institutions should be aware that APSN transactions have the potential to be inherently deceptive.
"[Banks should] ensure the financial institution's practices for charging any fees on deposit accounts are communicated accurately, clearly, and consistently. However, disclosures generally do not fully address Dodd-Frank UDAAP and FTC UDAAP risks associated with APSN transactions and related overdraft fees," the agency wrote.
