On October 26, 2022, President Biden appear at the White House with Rohit Chopra, Director of the CFPB, and Lina Khan, Chair of the FTC, to announce that his Administration is taking action to eliminate all “junk fees,” such as fees for deposited checks that are returned unpaid, surprise banking overdraft fees, hidden hotel reservation fees and termination charges to prevent people from switching cable plans. The President stated that (1) His Administration made payments to deposit bounced checks and overdraft fees for (APSN) transactions that allowed positive balances but then settled “illegal” negative balances to save consumers over $1 billion each. year, (2) the CFPB is developing rules and guidance that will reduce credit card late fees that cost credit cardholders $24 billion annually, and (3) the Administration has encouraged banks to reduce the fees they charge consumers across the board and that the CFPB is developing rules that require banks to go further in dealing with additional types of junk fees. The White House also published a blog about the President’s garbage fee initiative.
At the event, Director Chopra announced that the CFPB had just issued new guidance (described below) on two bank deposit fee practices that are “potentially unfair and illegal under existing law.” The CFPB’s guidance relies on the unfairness prong of the UDAAP, which prohibits an act or practice if (1) it causes or is likely to cause substantial injury to consumers; (2) the injury could not reasonably have been avoided by the consumer; and (3) the injury is not outweighed by countervailing benefits to consumers or competition.
CFPB Circular 2022-06 address the practice of charging “surprise overdraft fees” for ASPN transactions. The CFPB stated that these fees are unfair because they are not reasonably foreseeable by consumers, are likely to cause substantial and unavoidable injury, and are not outweighed by countervailing benefits to consumers or competition. The CFPB cited previous Federal Reserve and FDIC guidance and its most recent consent order related to ASPN overdraft fees. The CFPB characterized these fees as “unexpected” because financial institutions use overdraft assessment policies and processes that are “incomprehensible to most consumers and consumers have no control over,” such as settlement times, posting orders, availability of funds and balances used for overdraft fees. The CFPB stated: “Certain financial institution practices may exacerbate injury from unexpected overdraft fees from APSN transactions by assessing overdraft fees in excess of the number of transactions for which the account lacks sufficient funds. In this APSN situation, financial institutions assess overdraft fees at settlement time based on the user’s available balance reduced by debit holdings, rather than the user’s ledger balance, leading to consumers being assessed multiple overdraft fees when they might reasonably expect only one. ” Based on this policy, it appears that the CFPB will view ASPN overdraft fees as unfair even if banks clearly disclose to consumers that overdraft fees apply to APSN transactions.
CFPB Compliance Bulletin 2022-06 also addresses the practice of charging for returned items. The CFPB states that “[b]lanket’s policy of charging a Deposited Item Returned fee to users for all returned transactions regardless of the circumstances or pattern of behavior on the account is likely unfair….” The CFPB’s analysis focused on consumers’ lack of awareness and control over whether checks would be returned unpaid. The CFPB suggests that these fees may be imposed if “bank policies and practices are well adapted to address this issue, do not harm consumers in some other way, minimize losses to depository institutions that would be passed on to consumers, strengthen the integrity of the banking system through loss avoidance, and, in cases of fraud, prevent conduct contrary to public policy as contained in statute and common law.” Although the CFPB states that this fee is allowed for consumers who (a) repeatedly deposit bad checks from the same originator or (b) deposit unsigned checks, the CFPB ignores the impracticality of this approach because it may require manual processing of returning checks.
As we have commented before, the CFPB continues to avoid promulgating transparent rules using notice and comment procedures. Instead, the CFPB relies on this policy statement to determine what “may” be considered a UDAAP under the CFPA. By issuing this general policy statement, which the CFPB has stated “do not impose any legal requirements on outside parties,” along with previous blog posts, several overdraft studies and enforcement actions, the CFPB has made it difficult for banks seeking to comply with the promulgated rules to clearly identify. needs. As a result, to avoid regulatory scrutiny and reduce risk, banks should review their fee policies as they relate to overdraft fees for APSN, fees for checks that are deposited and returned unpaid, and other fees that can then be classified as “junk fees. “