FDIC rescinds 2023 guidance on nonsufficient-fund fees

• Key insight: The FDIC rescinded guidance that warning banks that charging multiple nonsufficient-funds fees for the same transaction could be considered unfair or deceptive under the law, thus subjecting a bank engaging in the practice to enforcement action.
• Expert quote: "Supervised institutions should ensure their disclosures to consumers accurately reflect their practices and are provided in accordance with applicable laws, regulations, and other current legal requirements." — Federal Deposit Insurance Corp.  

• Forward look: The rescission of the guidance comes after the Minnesota Bankers Association sued the agency in 2023, arguing that the guidance violated the Administrative Procedure Act. An appellate court affirmed a lower court dismissal of that suit in 2025.

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WASHINGTON — The Federal Deposit Insurance Corp. said it is rescinding a guidance document advising banks that charging multiple nonsufficient-funds, or NSF, fees for a single transaction could be considered a violation of the ban on unfair or deceptive acts or practices, eliminating regulatory barriers to the practice.

In a move announced Friday afternoon, the FDIC said it reviewed the guidance and concluded that it is "overly broad in scope and has raised uncertainty regarding when, for instance, disclosures regarding re-presentments may result in 'unfairness' concerns" under the Federal Trade Act, which bans so-called UDAP practices in financial services and products.

"As a result, the FDIC is rescinding FIL-32-2023 effective immediately," the FDIC said in a public statement. "Supervised institutions should ensure their disclosures to consumers accurately reflect their practices and are provided in accordance with applicable laws, regulations, and other current legal requirements."

The guidance was first issued in 2022 during the Biden administration and was meant to curb circumstances in which banks charge a customer multiple NSF fees for the same declined transaction. The FDIC and OCC later revised the guidance in June 2023 to clarify that the agency would "not request an institution to conduct a lookback review" of past practices unless there was "likelihood of substantial consumer harm."

An NSF fee is often charged by banks if a customer initiates a payment from an account with insufficient funds to cover the payment — a "bounced check" in common parlance. NSF fees are similar to but distinct from overdraft fees, with the difference being that overdraft protection is an agreement between the customer and the bank for the bank to cover such payments rather than decline the transaction. If a transaction is declined because of insufficient funds, banks may attempt to run the transaction again, which can result in customers being charged multiple times.

The Minnesota Bankers Association sued the FDIC and OCC over the guidance, saying that it violated the Administrative Procedure Act because the guidance effectively banned the practice without going through a proper notice-and-comment rulemaking process. A judge dismissed that suit in April 2024, finding that the guidance did not impose additional burdens on banks subject to the Federal Trade Act and further was not the basis for an enforcement action, and thus did not amount to a rule and was not subject to APA requirements. The MBA appealed that decision to the U.S. Court of Appeals for the 8th Circuit, which affirmed the lower court ruling in September 2025. The Minnesota Bankers Association had not filed a notice to appeal the 8th Circuit ruling.

Joe Witt, President and CEO of the MBA, said in an interview with American Banker Friday afternoon that the group had been in touch with the FDIC in the past several months about rescinding the Financial Institution Letter, and spoke personally about the issue with FDIC Chair Travis Hill last month. Witt said the agency had stopped engaging in any enforcement of the FIL after they filed suit, which resolved most of the association's concerns. The recission of the letter, however, quelled all remaining issues the MBA had.

"The Minnesota Bankers Association is very pleased to see that the FDIC has rescinded this FIL," Witt said via email. "This action by the agency is a positive result for all the FDIC-supervised institutions. We are grateful that the FDIC staff was willing to listen to our arguments and work with us to reach this conclusion."