Extra CFPB assaults on financial institution charges by way of coverage statements

On October 26, 2022, President Biden appeared at the White House with Rohit Chopra, CFPB Director, and Lina Khan, FTC Chair, to announce that his Administration is taking motion to eradicate all “junk charges,” resembling charges for deposited checks which are returned unpaid, shock banking overdraft charges, hidden lodge reserving charges and termination expenses to cease individuals from altering cable plans.  The President acknowledged that (1) his Administration is making charges for depositing a test that bounces and overdraft charges for (APSN) transactions which are licensed right into a optimistic steadiness however later settle right into a damaging steadiness “unlawful” to avoid wasting shoppers over $1 billion every year, (2) the CFPB is growing guidelines and steering that would cut back bank card late charges that value bank card holders $24 billon every year, and (3) his Administration has inspired banks to cut back the charges they cost shoppers across-the-board and that the CFPB is growing guidelines that may require banks to go additional in addressing further forms of junk charges.  The White Home additionally revealed a blog concerning the President’s junk charges initiative.

On the occasion, Director Chopra introduced that the CFPB had simply issued new steering (described beneath) about two financial institution deposit payment practices which are “doubtless unfair and illegal underneath current legislation.”  The CFPB steering depends on the unfairness prong of UDAAP, which prohibits an act or observe if (1) it causes or is more likely to trigger substantial harm to shoppers; (2) the harm is just not moderately avoidable by shoppers; and (3) the harm is just not outweighed by countervailing advantages to shoppers or to competitors.

CFPB Circular 2022-06 addresses the observe of charging “shock overdraft charges” for ASPN transactions.  The CFPB acknowledged that these charges are unfair as a result of they can’t be moderately anticipated by shoppers, are more likely to impose substantial harm that can’t be prevented, and usually are not outweighed by countervailing advantages to shoppers or competitors. The CFPB cited prior Federal Reserve and FDIC steering and its latest consent order associated to ASPN overdraft charges.  The CFPB characterised these charges as “unanticipated” as a result of monetary establishments use overdraft evaluation insurance policies and processes which are “unintelligible for a lot of shoppers and that buyers can’t management,” resembling settlement timing, posting order, funds availability, and steadiness used for overdraft charges.  The CFPB famous: “Sure monetary establishment practices can exacerbate the harm from unanticipated overdraft charges from APSN transactions by assessing overdraft charges in extra of the variety of transactions for which the account lacked ample funds.  In these APSN conditions, monetary establishments assess overdraft charges on the time of settlement based mostly on the buyer’s obtainable steadiness lowered by debit holds, relatively than the buyer’s ledger steadiness, resulting in shoppers being assessed a number of overdraft charges when they might moderately have anticipated just one.”  Primarily based on this coverage, it seems that the CFPB would view ASPN overdraft charges as unfair even when a financial institution have been to obviously open up to shoppers that an overdraft payment applies to APSN transactions.

CFPB Compliance Bulletin 2022-06 additionally addresses the observe of charging a payment for returned deposited gadgets.  The CFPB acknowledged that “[b]lanket insurance policies of charging Returned Deposited Merchandise charges to shoppers for all returned transactions regardless of the circumstances or patterns of habits on the account are doubtless unfair….”  The CFPB’s evaluation focuses on the shoppers’ lack of knowledge and management over whether or not the test might be returned unpaid.  The CFPB advised that these charges might be charged if a financial institution’s “coverage and observe are well-tailored to handle the problem, don’t hurt shoppers in another method, decrease losses to the depository establishment that may be handed by way of to shoppers, bolster the integrity of the banking system by way of loss avoidance, and, within the case of fraud, forestall conduct that offends public coverage as embodied in statutes and customary legislation.”  Though the CFPB acknowledged that these charges can be permissible for a client that’s (a) repeatedly depositing unhealthy checks from the identical originator or (b) depositing unsigned checks, the CFPB ignores the impracticableness of this strategy because it doubtless requires guide processing of the returned checks.

As we have previously commented, the CFPB continues to keep away from promulgating clear guidelines utilizing discover and remark procedures.  As a substitute, the CFPB is counting on these coverage statements to dictate what’s “doubtless” to be thought of a UDAAP underneath the CFPA.  By issuing these general policy statements, which the CFPB has acknowledged “don’t impose any authorized necessities on exterior events,” along with prior weblog posts, a number of overdraft research, and enforcement actions, the CFPB has made it tough for banks in search of to adjust to the promulgated guidelines to determine clear necessities.  Because of this, to keep away from regulatory scrutiny and mitigate danger, banks ought to evaluation their payment insurance policies as they relate to overdraft charges for APSN, charges for checks which are deposited and returned unpaid, and different charges that might be later labeled as “junk charges.”