The Federal Reserve’s recent Compliance Spotlight (by the Fed’s Consumer Compliance Outlook) published a research note on supervisory observations regarding “representment fees” this week.
Through supervisory examinations, the Fed 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 credit union or 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 non-sufficient 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.
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