When a merchant transaction is presented for payment from a consumer account and is refused due to the customer’s insufficient funds to cover the transaction, financial institutions typically charge an NSF fee. When a merchant tries to present the same transaction again in order to recover the denied funds, he or she may be charged a re-presentment NSF fee. If a depository institution receives this type of repeated merchant payment transaction more than once, the depository institution may levy multiple NSF fees. If an Automated Clearing House (ACH) or other item is presented for payment and is denied owing to insufficient funds, certain financial institutions will levy an NSF fee for both the original presentment and each subsequent representation.
In recent class action lawsuits against financial institutions, the removal of key clauses pertaining to the assessment of representation fees was considered to be a violation of contract. Some lawsuits have been settled, with customers receiving refunds and legal fees. Additionally, state, and federal financial regulators are reviewing DDA agreements searching for potential legal, regulatory and UDAP risks. With these potential risks it is important to review your deposit disclosures and contract language to ensure the way NSF fees are charged is being communicated clearly and consistent to what a consumer could reasonably expect.
This is a great time to make sure that you review your accounts and all of your customers/members that are eligible for Overdraft Privilege should be added to the ODP program unless they have opted out of the program. By doing this it will minimize your risk for NSF fees being represented, because if your customers/members have an Overdraft limit their items will be considered for payment instead of returned. Paying the item instead of returning it will ensure that the financial institution minimizes its risk for NSF re-presentments because the item is not returned. Also, overdraft privilege provides a better service to your customers/members because they will not be faced with potential late fees, retailer fees and damage to their credit from returned items.