Cornerstone Shares CU Concerns Regarding NCUA’s ODP Guidance

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Last week, the National Credit Union Administration issued a letter to federally insured credit unions (24-CU-03) 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. This guidance aligns with guidance issued by the CFPB in 2022.  

Key Highlights

• 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: Includes 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 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. 

Cornerstone Recommendations

The Cornerstone team has heard from some of you on this topic, as this letter has sparked concern among credit unions. We 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. 

Be assured that the League will continue to monitor developments and engage in ongoing conversations with the NCUA to address these issues. 

Questions? Contact information central at [email protected].