On August 16, the U.S. District Court for the Northern District of New York issued a summary order in favor of the plaintiff, allowing a breach of contract claim to go forward based on a bank’s assessment of non-sufficient funds (NSF) fees. The ruling continues a trend of NSF fees coming under heavy scrutiny by both courts and regulators.

In Jenkins v. Trustco Bank, the plaintiff brought a putative class action, alleging his bank violated the contractual agreements governing his account by assessing multiple $36 NSF fees on the same item. The bank asserted that the agreements’ language between the parties unambiguously authorized charging multiple NSF fees for re-presented payments because each time a payment is re-presented, it is considered a new item. The court rejected the bank’s argument, citing an almost identical suit brought earlier this year under the same breach of contract theory that proceeded past the pleadings phase. The earlier suit, Lamoureux v. Trustco Bank, also concerned the bank’s NSF and overdraft fee practices.

“With respect to the breach of contract claim, the court in Lamoureux found that the terms of the contract were ambiguous, both interpretations of the contract were reasonable, and dismissal of the breach of contract claim was not proper … . Following the reasoning in Lamoureux, both interpretations are reasonable here, thus, the contract is ambiguous, and Trustco’s motion to dismiss is denied on this issue.”

NSF fees also caught the attention of federal and state regulators. On August 18, the Federal Deposit Insurance Corporation (FDIC) issued new supervisory guidance that banks charging multiple NSF fees on a single item, unless based on clear consumer consent, might violate consumer laws. Notably, while the FDIC outlined this position in prior guidance, the FDIC escalated its messaging by floating potential enforcement actions if it determines that NSF fees have been charged in violation of law, and the institution has not already provided full refunds prior to an examination.

In previous posts, we discussed the CFPB’s and Massachusetts’ commissioner of banks similar warnings regarding potential UDAP liability from charging multiple NSF fees without clear prior disclosure. To date, the OCC and the Federal Reserve have not indicated they will pursue similar enforcement actions.