NCUA Letter to Credit Unions 24-CU-03 Overdraft and Non-Sufficient Funds Fee Practices

On December 10, 2024, NCUA issued a Letter to Credit Unions (Letter), 24-CU-03, about consumer harm stemming from certain overdraft and non-sufficient funds (NSF) fee practices. The Letter discusses the risks associated with charging overdraft and NSF fees when a member cannot reasonably anticipate the fee as well as outlining practices to aid credit unions in managing and mitigating the risks. It also emphasized that the assessment of unanticipated fees on credit union members may violate the prohibition against unfair or deceptive acts or practices under the Federal Trade Commission Act (FTC Act) and the Consumer Financial Protection Act (CFPA). The timing of the Letter appeared to complement the overdraft final rule that was published the same week.

In the Letter, NCUA stated that an unanticipated overdraft fee occurs when “a credit union assesses overdraft fees on transactions that a member would not reasonably expect would give rise to such fees.” Adding that even when a credit union provides the required disclosures related to their overdraft and NSF fee policy, members may still be unclear about when transactions will post to their account and whether they will incur overdraft fees due to the complex nature of these disclosures.

Below we will cover several overdraft and NSF fee practices that are described in the Letter which the NCUA states may result in consumer harm due to members not being able to reasonably anticipate or avoid the fee. Ultimately, exposing a credit union to heightened reputational, consumer compliance, third-party, and litigation risk.

Authorize Positive, Settle Negative Overdraft Fees
One example of unanticipated fees is authorize positive, settle negative (APSN) overdraft fees. This occurs when an overdraft fee is assessed on debit card transactions that authorize when a member’s account has the available balance to cover the transaction but has an insufficient balance to cover the transaction at the time it settles. Again, the CFPB states that charging an APSN overdraft fee is likely unfair under the FTC Act and the CFPA.

Multiple NSF Represent Fees
Another scenario in the Letter is when a credit union assesses multiple NSF fees for the representment of the same check or automated clearing house (ACH) transaction. For example, if a check or ACH transaction is initially presented for payment from a member’s deposit account which has insufficient funds, and then again, the same check or ACH transaction is represented and the member’s account still has insufficient funds, NSF fees are charged on each representment. The Letter states that in these scenarios the member typically doesn’t have control over when a returned check or ACH transaction will be presented again and thus is unable to reasonably avoid fees from representment transactions. Consequently, the Letter states that it is likely unfair under the FTC Act and the CFPA even when the member disclosures outline representment practices.

Returned Deposited Item Fees
The Letter states that blanket policies of charging a returned deposited item (RDI) fee, regardless of the circumstances of the transaction, to a member who deposits a check into their share account that is returned to the member because the check could not be processed against the check originator’s account is unfair under the FTC Act and the CFPA.

Other Overdraft or NSF Practices
The Letter also provides a list of additional fee practices that may present heightened risk:

• High or no daily limits on the number of fees assessed. Charging overdraft or NSF fees with a high limit, or without limit, for multiple transactions in a single day.
• Insufficient or inaccurate fee disclosures. Failure to disclose processing cutoff times as well as inaccurate disclosures can mislead members.
• Ordering transactions to maximize fees. Structuring the transaction processing order so that the largest debit item processes first can result in the account being overdrawn faster.

Risk Management Principles 
The Letter also discusses recommendations for credit unions who offer an overdraft program or charges NSF fees, including:

• Review and analyze overdraft and NSF fee practices, including opt-in disclosures and website advertising;
• Review recent regulatory developments;
• Consider member impact;
• Track and analyze related member-compliant activity;
• Monitor and take appropriate action to mitigate risk; and
• Consult legal counsel regarding risks and consumer compliance responsibilities.

NCUA’s Supervisory Approach
Lastly, the Letter concludes with the NCUA’s supervisory approach which includes expectations of credit unions’ fee practices and mitigation of those risks, including ceasing the practice of unanticipated fees and being proactive to self-identify and correct any violations prior to the start of an examination. Finally, the Letter addresses supervisory and enforcement actions stating that “in determining the scope of any restitution, the NCUA will consider the likelihood of substantial consumer harm as well as a credit union’s risk-management processes to identify and correct violations.”

Questions? Please reach out to the Compliance Team at compliance@americascreditunions.org.

In other news, America’s Credit Unions and other financial services organizations filed a lawsuit last week to block the CFPB’s final overdraft rule. For more details, please visit our website which provides the latest news.