On April 26, both the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued separate advisories warning against the risks associated with overdraft fees, particularly those associated with “Authorize Positive, Settle Negative” (APSN) transactions.
In issuing its supervisory guidance, the FDIC emphasized:
- Some banks assess overdraft fees on debit card transactions that authorize when a customer’s available balance is positive but later post to a customer’s account when their balance is negative, also known as APSN.
- More specifically, a customer’s account has a sufficient available balance to cover a debit card transaction when the transaction is authorized but, due to one or more intervening transactions, has an insufficient balance to cover the transaction at the time it settles.
- Some banks assess an overdraft fee on the APSN transaction as well as the intervening transactions that exceeded the customer’s account balance.
- The agency warns that failure to take steps to avoid assessing overdraft-related fees in APSN transactions results in heightened risks of violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which prohibits any covered person or service provider from engaging in any unfair, deceptive, or abusive acts or practices in connection with a consumer financial product or service, and Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices.
- Institutions are encouraged to:
- Review their practices regarding the charging of overdraft fees on APSN transactions to ensure customers are not charged overdraft fees for transactions consumers may not anticipate or avoid.
- Ensure overdraft programs provided by third parties are compliant with all applicable laws and regulations.
- Review disclosures and account agreements to ensure the financial institution’s practices for charging any fees on deposit accounts are communicated accurately, clearly, and consistently.
- Though institutions are warned that disclosures alone do not mitigate the risks associated with APSN transactions.
In its bulletin, the OCC not only focused on the risks related to APSN transactions, but also focused on overdraft protection programs and advocated for certain risk management practices.
- The agency acknowledged that, when supported by appropriate risk management practices, overdraft protection programs may assist some consumers in meeting short-term liquidity and cash-flow needs.
- The agency encouraged banks to explore offering low-cost accounts, as well as other lower-cost alternatives for covering overdrafts, such as overdraft lines of credit and linked accounts.
- The agency also provided a list of risk management practices that banks may consider adopting, including:
- Consumer disclosures that support informed decision making with regard to overdraft protection programs and their related costs;
- Periodic reviews of customer accounts who use overdraft protection programs on a regular basis to confirm they are not incurring disproportionate costs;
- Grace amounts from fees that are based on transaction size or the magnitude of the overdrawn balance;
- Grace periods that provide additional time before the assessment of fees for customers to address a potential or actual negative account balance;
- Alerts in real or near real time to allow consumers to address negative balances or items being presented for settlement to avoid fees;
- Single daily fee assessments that are reasonably related to the costs of providing either overdraft protection or non-sufficient funds services;
- Collecting fees related to overdraft protection or non-sufficient fund services from the next deposit only after all other appropriately presented items have cleared to ensure that a greater amount of the consumers’ deposited funds is available for consumer use.
APSN fees have received scrutiny from the Consumer Financial Protection Bureau (CFPB). For example, the CFPB’s 2015 Supervisory Highlights and a June 2022 Circular both discuss this as a prohibited practice. The CFPB has also brought enforcement actions against financial institutions that engage in charging APSN fees.