Lawsuit: FDIC lacked authority to issue NSF requirement

The Minnesota Bankers Association and Annandale, Minn.-based Lake Central Bank have filed a federal lawsuit against the FDIC alleging the agency lacked statutory authority to require banks to retroactively evaluate their non-sufficient funds policies. .The lawsuit, filed July 20, alleges that the FDIC lacked the authority to change existing bank disclosure requirements and issue an Unfair and Deceptive Acts or Practices rule on NSF fees. The lawsuit also accuses the FDIC of violating the Administrative Procedure Act by bypassing input from regulated financial institutions and the public before issuing the rule. .The lawsuit was filed in response to FDIC guidance issued last August which found that financial institutions violated the UDAP prohibition of the Federal Trade Commission Act by not clearly describing their re-presentment policies before charging multiple NSF fees for the same transaction. The agency recommended banks retroactively evaluate their NSF practices for risks stemming from the charging of multiple NSF fees. If issues were found, banks were expected to take corrective action, including providing restitution, the agency said. . In June, the FDIC clarified banks would not need to conduct the look-back unless there was the "likelihood of substantial consumer harm," a clarification which the MBA and Lake Central Bank said lacked specificity. "The FDIC cannot mandate sweeping new notice or alert and disclosure obligations, deem specific conduct unfair or deceptive, or retroactively enforce these new mandates by requiring restitution under the direct threat of civil penalties and enforcement actions," the lawsuit stated. .The FDIC's guidance is causing many banks to be wary of collecting fees for a service they are still required to provide, according to the lawsuit. Lake Central reportedly didn't have an automated process to reliably identify re-presentments. "The FDIC failed to consider that banks are necessarily dependent upon automated systems, which may not have sufficient information to identify a payment as a re-presentment," the lawsuit stated.