MA Commissioner of Banks Supervisory Alert on Representment of NSF Fees

The Massachusetts Commissioner of Banks recently issued a Supervisory Alert recommending that financial institutions review and update consumer account agreements for deposit accounts to ensure they properly disclose policies for assessing Non-Sufficient Funds (NSF) fees, especially concerning representment.  The alert arrives after a number of consumer lawsuits alleging financial institutions did not adequately explain how and when NSF Fees may be charged in their account agreements.

The Supervisory Alert cites a number of federal and state regulations which require financial institutions to provide disclosures that are clear and conspicuous.  For example, Regulation DD, implementing the Truth-in-Savings Act, 12 C.F.R. § 1030.4(b)(4), and Regulation E, implementing the Electronic Fund Transfers Act, 12 C.F.R. § 1005.7(b)(1), promulgate such requirements.  In addition, the Alert cites Massachusetts General Law Chapter 93A § 2(a) and the FTC Act § 5(a), which prohibit unfair or deceptive acts or practices.

According to the Commissioner, account agreements using language such as “NSF Fees will be charged per item or per transaction” may not always clearly explain how representment of a charge may trigger multiple NSF fees, with fees being charged each time the merchant presents a request.  Representment may occur when the electronic transfer has been declined and is presented again by the merchant, as permitted under Nacha rules.

The Commissioner encourages financial institutions to review their consumer contracts to clearly communicate to the consumer how NSF fees are charged or may be charged under representment conditions, in order to decrease the risk of consumer litigation and regulatory actions.  The Alert notes that regulators may also conduct a comprehensive review of NSF fee language during regulatory examinations of a financial institution’s policies.