The New York State Department of Financial Services released an Industry Letter that has identified several unfair or deceptive acts or practices regarding the imposition of overdraft fees and non-sufficient funds (NSF) fees as part of its supervisory process. The guidance further alerts financial institutions that the Department will evaluate whether these institutions are engaged in deceptive or unfair practices with respect to overdraft and NSF fees in future Consumer Compliance and Fair Lending examinations. The Department identified:

  • Overdraft Fees Relating to Authorize Positive, Settle Negative (“APSN”) Transactions – It was found that some institutions are charging consumers an overdraft fee even though they had a sufficient positive balance at the time that the transaction was authorized by the institution. Imposing overdraft fees under these circumstances is unfair because it causes injury to consumers that they cannot reasonably avoid; consumers have no control over or involvement in the settlement and presentment of debit card transactions, which typically takes place some days after the consumer conducts the transaction; when institutions authorize a debit card transaction on an account with sufficient funds to cover the transaction, the consumer reasonably expects that they will not incur an overdraft charge on that transaction; and there is no benefit to consumers or competition from an institution’s overdraft charges on APSN transactions.
  • Double Fees Arising from Futile Overdraft Protection Transfers – The Department found that some institutions that offer consumers an overdraft protections service and charge for this service have charged a fee for overdraft protection transfers even where the transfer amount is insufficient to prevent the actual overdraft. In this case, the consumer was charged a fee for overdraft protection and a fee for the overdraft that the “protection” failed to prevent. This “double fee” is an unfair practice because it provides no value to the consumer and is not reasonably avoidable by consumers, who have no reason to expect that they will be charged a fee for an overdraft protection transfer that does not in fact protect them against an overdraft and offers no benefit to either consumers or competition. In addition, it is deceptive to consumers who believe that the overdraft protections transfer will actually prevent the overdraft.
  • NSF Fees Relating to Representments – The Department has found that some Institutions charge a separate NSF fee for each presentment, or representment, of the same item, resulting in multiple NSF fees for a single transaction (“multiple NSF fees”). This practice is deceptive where the institution’s disclosures fail to expressly disclose that multiple fees may be charged “per item” or “per transaction” and is deceptive when the institution represents that only one NSF fee will be charged “per item” or “per transaction” without disclosing that the same processed item may trigger multiple NSF fees. The Department states that institutions charging multiple NSF fees must make clear, conspicuous, and regular disclosure to consumers that they may be charged more than one NSF fee for the same attempted debit transaction when that debit is represented after being declined for insufficient funds with “clear, conspicuous and regular disclosure” to mean that institutions will include this disclosure in their regular communications with consumers (e.g., in each account statement, rather than in account-opening materials only) together with a direct point of contact for consumers who may have been subject to multiple NSF fees. Lastly, the Department identified this practice as potentially unfair since consumers have no control over, or involvement in, the representment of debit transactions and no way to avoid representments once a consumer has attempted a transaction.

The Department expects that these practices be discontinued or only do so consistent with their account disclosures.