CFPB Publishes Overdraft Fee Guidance

On Sept. 17, the Consumer Financial Protection Bureau (CFPB) published guidance for federal and state consumer protection enforcement officials to use to prevent banks and credit unions from charging overdraft fees in certain situations. The guidance states that a financial institution cannot legally charge overdraft fees for ATM and one-time debit card transactions if the financial institution does not have proof of the consumers’ affirmative consent. The proof of affirmative consent can vary depending on the avenue the consumer uses to opt into covered overdraft services.

Electronic Fund Transfer Act and New Guidance

Originally enacted in 1978, the Electronic Fund Transfer Act (EFTA) is meant to protect individual consumers engaging in electronic fund transfers (EFTs). The Dodd-Frank Act amended the law to grant the CFPB rulemaking authority under EFTA. Subsequently, the CFPB updated EFTA’s Regulation E to require financial institutions to provide consumers with a “reasonable opportunity for the consumer to affirmatively consent, or opt in” to covered overdraft services, and financial institutions must obtain a consumer’s affirmative assent for those services. The CFPB’s newly published circular clarifies that banks and credit unions may be violating the EFTA and Regulation E if they do not have proof of a customer’s affirmative consent to enroll in covered overdraft services.

The CFPB cited instances of “phantom opt-in” agreements as reason for publishing the circular. CFPB Director Rohit Chopra said in a statement that “The CFPB has found instances where banks have no evidence that they obtained consent for overdraft. No Americans should be hit with bank account fees that they never agreed to.” While the new guidance does not have the same force and effect as a regulation, it does show that the CFPB is focused on addressing the prevalence of overdraft fees. The guidance states that consumer protection law enforcers should assume consumers have not consented to overdrafts unless the financial institution can prove otherwise.

Types of Records Evidencing Opt-In

The guidance offers a few examples of the types of records financial institutions can use to demonstrate that a customer has consented to overdraft charges. These include:

• A copy of a form signed or initialed by the consumer indicating the consumer’s affirmative consent to opting into covered overdraft services.
• A recording of a consumer phone call in which the consumer elected to opt into covered overdraft services.
• A securely stored and unalterable “electronic signature” conclusively demonstrating the specific consumer’s action to affirmatively opt in and the date that the consumer opted into enrollment.

Outlook

The CFPB’s most recent action related to its war on “junk fees” could create some new compliance complexities for banks and credit unions. The new guidance comes as the CFPB is continuing to pursue a proposed rulemaking. It is expected that the final rule will not be released until next year, after the election. Thus, this guidance may be an attempt from the CFPB to show further action to limit overdraft services in lieu of a final rule before the election, when the leadership of the agency could change. The CFPB is proposing to set the benchmark overdraft fee to between $3 and $14, significantly less than the $35 fee that most financial institutions charge, which many have argued is necessary to recoup costs and offer a variety of products. The Brownstein Government Relations team expects the CFPB will continue to pursue regulatory actions in the final months of the Biden administration to target alleged junk fees and is available to assist with advocacy and legal issues surrounding this guidance.

THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW RULES ON OVERDRAFT FEES. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.