Consumer Compliance Outlook: Second Issue 2023

Compliance Spotlight - Supervisory Observations on Representment Fees

Background and Observations

Through supervisory examinations, the Federal Reserve recently analyzed the practice of imposing fees on represented transactions at several supervised institutions for compliance with applicable federal consumer financial laws.

As background, a representment occurs when, after a bank declines to pay a debit transaction from a consumer’s checking account because of insufficient funds, the merchant presents that same transaction again to the bank for payment. Examiners identified more than one institution that charged a nonsufficient funds (NSF) fee when a transaction was first presented and declined and also charged additional NSF fees each time the same transaction was represented and declined.

At more than one supervised institution, examiners cited the assessment of NSF fees on represented transactions as an unfair practice in violation of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices (UDAP), based on the following findings:

Managing Risks

Examiners identified the following methods that institutions had effectively used to mitigate UDAP risk related to the assessment of fees on represented transactions:

This list is based on supervisory observations to date and does not impose any legal obligations on banks. Other methods may also assist banks in managing their UDAP risks.

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