On April 26, 2023, the FDIC issued a supervisory guidance to its supervised institutions to ensure that supervised institutions are aware of the consumer compliance risks associated with assessing overdraft fees on a transaction that was authorized against a positive balance but settled against a negative balance (APSN). The guidance also clarifies that disclosures describing transaction processing may not mitigate the said risks.
The guidance expands on an FDIC 2019 Supervisory Highlights article titled “Overdraft Programs: Debit Card Holds and Transaction Processing” by discussing the FDIC’s concerns with both the available and ledger balance methods used by institutions when assessing overdraft fees. According to the FDIC, supervised institutions should be aware of heightened risks of violations of Section 1036(a)(1)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Section 5 of the Federal Trade Commission (FTC) Act when assessing overdraft-related fees on APSN transactions.
Highlights of the guidance include:
Unanticipated and unavoidable overdraft fees can cause substantial injury to consumers. Due to the complicated nature of overdraft processing systems and payment system complexities outside the consumer’s control, consumers may be unable to avoid injury.
Institutions are encouraged to review their practices regarding the charging of overdraft fees on APSN transactions to ensure customers are not charged overdraft fees for transactions consumers may not anticipate or avoid.
Institutions should ensure overdraft programs provided by third parties are compliant with all applicable laws and regulations.
The FDIC’s financial institution letter can be found here.
The full supervisory guidance can be found here.