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Before expanding on key takeaways from the FDIC ’ s recent supervisory letter , it is important to acknowledge the topic of representment is not new . Many institutions have historically allowed consumers to represent a check or ACH to fulfill a transaction after receiving the initial notice a payment was declined because there were not enough funds in the account to cover the payment request . Typically , the institution may then charge the consumer an NSF fee for the initial transaction and may also assess additional NSF fees for the same unpaid transaction each time they allow a merchant to represent the same check or ACH following when the transaction ( s ) is subsequently declined .
Although the practice of representment has been standard for some institutions in the past , the FDIC noted an emerging concern that the consumer may not be fully aware of the financial cost of representment and were not being informed of the fees within initial disclosures . This discovery is especially relevant in light of recent growth in the use of ACH to process consumer ’ s cards or other electronic payments . Several state and federal
supervisory agencies have spotlighted the emergence of a number of recent class action lawsuits . Specifically , these lawsuits allege institutions are materially omitting key terms from their initial disclosures related to the organization ’ s representment practices and fees , which is leading to a direct breach in the consumer ’ s contract .
Contract omissions , as discussed in earlier statements , is just one of the potential risks the FDIC raises within its new supervisory letter which , if severe enough , could lead to claims of unfair , deceptive , or abusive acts or practices ( UDAAP ). These acts or practices are specifically prohibited under Section 5 of the FTC Act and other provisions of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 . In addition , the agency spotlighted third-party risk and inadequate oversight of the relationships , product and service offerings , as well as legal risk and other key issues an institution is expected to consider when determining how to manage its compliance program .
Based on the risks summarized earlier , consider these three key takeaways from the FDIC ’ s guidance that we recommend you start reviewing to prepare for emerging trends in the supervision of representment practices :
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