- Source: ConsumerFinance.gov
On October 26, 2022 the Consumer Financial Protection Bureau (CFPB or Bureau) issued Consumer Protection Circular 2022-06, Unexpected Overdraft Fee Assessment Practices (Circular). In the Circular, the CFPB posited that assessing overdraft fees may be an unfair practice under the Consumer Financial Protection Act (CFPA) even if fee practices comply with Regulation E and Regulation Z. Treliant knows deposit operations and consumer protection. If you need assistance assessing your institution’s risk of UDAAPs associated with overdraft fees or other deposit account fees, we can help.
In this Circular, the CFPB asked, “Can the assessment of overdraft fees constitute an unfair act or practice under the CFPA, even if the entity complies with the Truth in Lending Act (TILA) and Regulation Z, and the Electronic Fund Transfer Act (EFTA) and Regulation E?” and concluded that fees that comply with TILA, EFTA, Regulation Z, and Regulation E can still violate Section 1036 of the CFPA.
The CFPB defined an unanticipated overdraft fee as an overdraft fee assessed on a transaction that a consumer would not reasonably expect to result in assessment of such fees. The circular noted that the complexity of transaction processing and overdraft fee assessments may make it difficult for consumers to understand when they will occur overdraft fees.
In particular, the CFPB identified “authorize positive, settle negative” (APSN) transactions as potentially unfair. An APSN transaction occurs when a deposit account’s available balance is sufficient to cover a debit card transaction when the transaction is initiated and authorized, but the account balance is insufficient to cover the transaction at settlement. The CFPB asserts that consumers would not anticipate an overdraft fee in these circumstances.
Although not mentioned in the Circular, the Bureau recently entered into a consent order with a large bank for overdraft practices. That case involved APSN overdraft fees as well as other practices the CFPB alleged violated federal laws. The bank was ordered to pay a civil money penalty of $50 million and customer remediation of at least $141 million.
The CFPB press release announcing the Circular was issued simultaneously with Compliance Bulletin 2022-06: Unfair Returned Deposited Item Fee Assessment Practices, which warned against certain practices associated with fees charged when a check deposited into a consumer’s account is returned by the check originator’s bank. The Federal Deposit Insurance Corporation (“FDIC”) has also warned banks that charging additional NSF fees when represented ACH and check transactions are returned after the initial unpaid transaction was declined results in increased risk of unfair or deceptive acts and practices. It is clear that deposit account fees will remain under high levels of regulatory scrutiny. If your institution is concerned with UDAAP risk in deposit account practices, Treliant can help.