If you’ve been following regulatory compliance developments over the past 18 months or so, then you’ve likely noticed that the regulatory agencies have increased their scrutiny of certain fees charged by credit unions. While numerous fees have been targeted, the agencies have focused the most attention on overdraft and non-sufficient funds (NSF) fees.
For the most part, the Consumer Financial Protection Bureau (CFPB or Bureau) was leading the charge in this area. The CFPB has issued guidance or brought enforcement actions declaring several fee practices to violate the federal prohibition on Unfair, Deceptive and Abusive Acts or Practices (UDAAP), such as Authorize Positive, Settle Negative overdraft fees and NSF fees charged on re-presented transactions. More recently, the Bureau published proposed rules that would limit overdraft fees or require credit disclosures and prohibit certain NSF fees.
Over the past few months, however, the National Credit Union Administration (NCUA) has been ramping up their scrutiny of overdraft and NSF fees as well. In an October 2023 speech, NCUA Chairman Todd Harper stated that “it is time for credit unions to rethink their overdraft programs…” The NCUA’s 2024 Supervisory Priorities specifically note that NCUA examiners in 2024 will be reviewing overdraft programs, including “website advertising, balance calculation methods, and settlement processes.” Additionally, the priorities letter notes that examiners will be looking at adjustments credit unions have made to avoid potential consumer harm from “unexpected overdraft fees,” using terminology that mirrors the CFPB’s guidance relating to “junk fees.”
Call Reports in 2024 – New Fee Reporting Requirements
Recently, NCUA has proposed changes to the Call Report, which would require credit unions with $1 billion or more in assets to report the fee income they derive from overdraft and NSF fees.
For those who need a refresher – section 741.6(a)(2) of the NCUA regulations requires natural-person federally-insured credit unions to file a quarterly Call Report using NCUA Form 5300. These reports contain a wealth of information on the credit union’s finances – including assets, liabilities, and other financial data. The current version of the Call Report requires credit unions to report the total amount of fee income earned – i.e. the sum of income derived from fees such as overdraft fees, ATM fees, wire fees, late fees, statement fees, dormant account fees, and more.
In December 2023, NCUA published a draft of amended instructions for the Call Report which, if adopted, would become effective on March 31, 2024. This new version of the call report would continue to require credit unions to report their total fee income, but would also requires credit unions with $1 billion or more in assets to specifically break out how much of that total is attributable to overdraft fees and NSF fees, respectively. These changes were announced during Chairman Harper’s remarks to the Brookings Institution earlier this month, though they were not part of his published remarks.
This change could arguably create parity with banks, as banks over $1 billion are required to report certain fee income relating to NSF fees and other fees in their Call Report filings with the Federal Deposit Insurance Corporation (FDIC). However, Chairman Harper stated in his remarks to the Brookings Institution that the NCUA’s required reporting will be more granular than the reporting requirements applicable to banks. This change is also reminiscent of requirements imposed by California last year for state-chartered credit unions based in that state. Prior to the transformation to America’s Credit Unions, NAFCU blogged about that state-level reporting requirement, which culminated in a report issued by the state regulator on overdraft and NSF fees charged by California institutions. Now, NCUA is proposing to require similar data to be reported at the federal level, which potentially could be included in future NCUA reports. While many credit unions were already rethinking their overdraft and NSF fee practices in light of regulator scrutiny, credit unions may want to consider how reporting of this information could affect reputation risk and whether that might necessitate any changes to their fee-related practices.
Deadlines & Penalties
Credit unions are required to file this report by January 30th, April 30th, July 30th and October 30th of each year. Failure to file by 11:59:59pm on those dates could result in civil money penalties assessed by NCUA. Beginning in early 2020 NCUA chose not to assess civil money penalties for late filing due to the COVID-19 pandemic. That pause lasted through the end of the 2023 calendar year. However, NCUA announced in November 2023 that the agency would begin assessing civil money penalties for late Call Report filings starting January 1, 2024. Thus, credit unions filing Call Reports in 2024 will once again face the threat of civil money penalties for failure to comply with the filing deadline.