The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. on Wednesday warned banks about certain overdraft practices that could put them at risk of violating prohibitions against unfair or deceptive practices.
The notices follow the Biden administration’s push to rein in surprise charges, or “junk fees,” across several industries, including the financial services sector.
The OCC bulletin highlighted several overdraft practices that could result in violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as Section 5 of the Federal Trade Commission Act.
The regulator cautioned banks against assessing overdraft fees on “authorize positive, settle negative” or APSN debit card transactions, instances in which a transaction is authorized when a consumer’s balance is positive but later post to the account when the available balance is negative.
Such transactions are unfair, the OCC said, because consumers are “unlikely to be able to reasonably avoid injury.”
In its notice, the FDIC also highlighted the risks associated with ASPN transactions, and encouraged firms to review the role that their third-party providers play in processing transactions.
“Third parties often play significant roles in processing transactions, identifying and tracking balances at the time of authorization, and providing systems that determine when overdraft fees are assessed,” the FDIC said. “Institutions should ensure overdraft programs provided by third parties are compliant with all applicable laws and regulations.”
The OCC also warned banks against charging consumers representment fees, charged each time a third party resubmits the same transaction for payment after a bank returns the transaction for insufficient funds.
“This practice of charging an additional fee each time a single transaction is presented for payment by a third party without further action by the customer contributes to customer costs in circumstances in which those customers cannot reasonably avoid the additional charges,” the OCC said.
Bank disclosures could be deceptive if they do not clearly explain that multiple or additional fees may result from multiple presentments of the same transaction, the regulator said.
“Consumers typically have no control over when a returned ACH transaction or check will be presented again and lack knowledge of whether an intervening deposit will be sufficient to cover the transaction and related fees,” the OCC said.
The OCC noted several other overdraft practices that could present heightened risks for banks.
The regulator warned against overdraft policies that have high limits or lack daily limits on the number of fees assessed.
Banks should also refrain from charging a fixed, periodic fee for failure to cure a previous overdrawn balance, “especially when the bank does not accurately disclose the circumstances under which the customer could incur these fees,” the OCC said.
The agency said banks should consider adopting modified or expanded overdraft programs to help reduce the risk of violating laws and regulations.
The regulator said appropriate risk management practices in overdraft programs include short-term single payment structures, overdraft limits, grace periods and automated alerts.
The OCC noted that some banks have revamped their overdraft policies. The regulator also acknowledged that, when supported by appropriate risk management practices, overdraft protection programs can help consumers meet short-term liquidity and cash-flow needs.
