The Consumer Financial Protection Bureau (the “CFPB“or the”desk) announced yesterday that they had entered into a Consent Order (the “Consent Order”) against a financial institution for “unfair” and “abusive” acts and practices in connection with their assessment of overdraft fees related to this that we call “Positive overdraft operations authorized.” The Bureau defines an authorized positive overdraft transaction as a transaction for which the client’s account had sufficient funds available for the transaction at the time the client authorized the transaction, but lacked sufficient funds available upon subsequent settlement of the transaction. . This occurs because the customer has other intermediate transactions, such as outstanding checks that he may have written, that are presented for payment before the authorized positive overdraft transaction is presented for payment.
The CFPB’s statements about excessive fees in the financial services industry are not new, but the consent order represents an important development in the Bureau’s campaign against overdraft fees. Although the Federal Reserve and FDIC also ruled on permitted positive overdraft transactions, these guidelines identified potential violations of UDAP when consumer disclosures and contract terms failed to alert consumers to the practices of overdraft. In contrast, in the Consent Order, the Bureau appears to assert that all positive overdraft transactions authorized constitute a violation of the “UDAAP” under the Consumer Financial Protection Act, whether properly disclosed to the consumer and that they have been the subject of an appropriate contract.
The consent order prohibits the bank from charging overdraft fees as a result of positive authorized overdraft transactions and requires it to repay at least $141 million in illegal overdraft fees and pay a $50 civil penalty. millions of dollars. If your institution currently assesses overdraft fees on authorized positive overdraft transactions, you should carefully review your deposit account agreement and the information provided to ensure that these fees are properly disclosed and accepted by the consumer. Although the CFPB’s position in the Consent Order is not formal guidance or an administrative rule, you should assess the potential regulatory risk of continuing to assess overdraft fees in this manner in light of the Bureau’s position. on these costs.