Push back against overdraft/NSF fee demand letters
Fully disclosed overdraft programs have been widely accepted as a part of a community banking for more than a decade. When consumers understand how much of an overdraft limit they have, these programs provide a reliable solution for emergency needs or just-in-time financing. Financial institutions like yours find these programs provide a valuable service with a low risk of capital loss. For many consumers, the need for short-term access to funds occurs just before payday. How short-term is the need? According to the Consumer Financial Protection Bureau, most consumers will cure their overdraft balances in only three days.
As we end 2020, the regulatory demands on overdraft programs have not significantly changed. Existing regulatory guidance and banking rules on overdraft programs have been in place for years without an adjustment. Financial institutions consistently provide a disclosed overdraft service to consumers who use the program without complaint. Additionally, heavy overdraft users often receive counseling about alternatives to the fee-based overdraft program—which may or may not change their behavior.
Yet, the threat of compliance risk has increased exponentially because of aggressive litigation targeting these programs. Some law firms have focused on sending demand letters to financial institutions threatening class-action lawsuits. The demand letters tend to name an account holder of the financial institution who would represent a proposed class of consumers who have allegedly been improperly assessed overdraft fees when their accounts held enough funds to cover the transactions. The letter may also claim that the financial institution’s account agreement is vague. The letters also generally cite several federal district court cases that were decided in plaintiffs’ favor.
continue reading »
