UDAAP & Represented Item Fees

One of the hot topics during our Deposit Compliance Q&A Forum on May 5th was about charging multiple NSF fees on represented items. This has been the focus of some recent class-action lawsuits and it was also addressed in the FDIC’s March 2022 Supervisory Highlights. The FDIC specifically calls out agreements and/or disclosures that indicate NSF fees will be assessed “per item” or “per transaction” when, in fact, a fee will be assessed each time an item is presented for payment. Check out our May 17th blog for additional information.

This is a violation of the UDAAP variety, so you are really at the mercy of your examiners should they find this to be a problem at your institution.

The key to avoiding problems here is to ensure that both your account agreements and other account-related disclosures (fee schedules, etc.) are clear that NSF fees can be assessed each time an item is presented. We have seen instances where the account agreement is clear but the fee schedule only says “per item”.

We’ve also been getting a little feedback from banks on this. One bank was told by examiners they needed to do a look back before their upcoming exam and have a plan for going forward if they wanted to avoid a UDAAP violation. The bank proposed a one-year look back with restitution for affected customers which was accepted by their examiners. Another bank discovered on their own this was an issue and stopped charging a fee for represented items. Examiners cited them because they did not provide voluntary restitution to affected customers. In this case, they are potentially looking at a two-year look back.

TISA doesn’t require restitution, but since this is a UDAAP issue, all bets are off. It would seem the actual restitution would likely be less of a burden than the time and effort it takes to do the look back and identify affected customers. But, you also need to consider the potential legal and reputational risks.

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Published
2022/06/07

Kevin Edwards

Kevin brings years of experience and a unique perspective on regulatory matters to our clients. A self-proclaimed geek and accredited CRCM, Kevin is also a recovering attorney with experience as in-house counsel for a large regional bank and one of the leading national title insurance providers. For reasons unknown, Kevin decided to leave the safety and serenity of his desk job to seek fortune and glory as a wandering adventurer. Like a bank compliance version of Kwai Chang Caine, The Man with No Name or Don Quixote, he now travels the land seeking to help those in need and righting compliance wrongs, wherever he may find them. Kevin lives in Sioux Falls with his two children, who are surprisingly normal after having endured their father’s vivid imagination for their entire lives. He won’t admit to having any hobbies, because apparently “Regulations never sleep.” (While he does say this in his Batman voice, we’re pretty sure he’s joking.) From the looks of his Facebook page, he likes the outdoors and spending time with his large extended family (who seem like relatively normal people).

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