The National Credit Union Administration (NCUA) issued a new letter to federally insured credit unions this week outlining risks associated with certain overdraft and non-sufficient funds (NSF) fee practices that may lead to consumer harm, reputational damage, and heightened regulatory scrutiny.

• For federally insured credit unions in California and Nevada, this guidance aligns with similar guidance issued by the Consumer Financial Protection Bureau’s (CFPB) 2022 interpretations.
• For those specifically in California, the NCUA’s guidance aligns with similar guidance issued by the California Attorney General’s legal opinion issued earlier this year for state-chartered credit unions.

Key highlights of NCUA’s guidance:

• Unanticipated Overdraft Fees: Practices such as “Authorize Positive, Settle Negative” (APSN) transactions or other policies that members cannot reasonably anticipate may be considered unfair or deceptive under federal regulations.
• Multiple NSF Representment Fees: Charging fees each time a previously returned check or ACH transaction is re-presented can result in heightened compliance and reputation risks.
• Returned Deposited Item (RDI) Fees: Blanket policies charging depositors for returned items without considering specific transaction circumstances are likely unfair practices.
• Additional Risky Practices: These include excessive daily fee limits, misleading disclosures, and ordering transactions to maximize fees.

NCUA expectations for credit unions:

• Risk Analysis: Credit unions are encouraged to review and assess all overdraft and NSF fee practices, disclosures, and member communications for compliance with applicable laws.
• Member-Centric Policies: Implement policies that minimize the risk of unanticipated fees and provide affordable, transparent alternatives like linked savings accounts or small-dollar loans.
• Proactive Mitigation: Self-identify and reimburse members for fees charged under practices deemed unfair or deceptive.
• Enhanced Disclosures: Ensure clarity and accuracy in all fee-related communications, including processing times for transactions.

While the NCUA acknowledges the benefits of overdraft programs, it emphasizes the need for compliance systems that prevent consumer harm. Credit unions should be prepared for increased examination focus on these practices in upcoming supervisory cycles.

The Leagues encourage you to:

• Regularly review your credit union’s overdraft and NSF practices and disclosures.
• Consult with legal counsel to ensure compliance with the NCUA’s and CFPB’s guidance.
• Develop or update compliance management systems to align with these regulatory expectations.

The Leagues will continue to monitor developments and engage in ongoing conversations with the NCUA to address these issues.