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 action to eliminate all “junk fees,” such as fees for deposited checks that are returned unpaid, surprise banking overdraft fees, hidden hotel booking fees and termination charges to stop people from changing cable plans. The President stated that (1) his Administration is making fees for depositing a check that bounces and overdraft fees for (APSN) transactions that are authorized into a positive balance but later settle into a negative balance “illegal” to save consumers over $1 billion each year, (2) the CFPB is developing rules and guidance that would reduce credit card late fees that cost credit card holders $24 billon each year, and (3) his Administration has encouraged banks to reduce the fees they charge consumers across-the-board and that the CFPB is developing rules that would require banks to go further in addressing additional types of junk fees. The White House also published a blog about the President’s junk fees initiative.
At the event, Director Chopra announced that the CFPB had just issued new guidance (described below) about two bank deposit fee practices that are “likely unfair and unlawful under existing law.” The CFPB guidance relies on the unfairness prong of UDAAP, which prohibits an act or practice if (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.
CFPB Circular 2022-06 addresses the practice of charging “surprise overdraft fees” for ASPN transactions. The CFPB stated that these fees are unfair because they cannot be reasonably anticipated by consumers, are likely to impose substantial injury that cannot be avoided, and are not outweighed by countervailing benefits to consumers or competition. The CFPB cited prior Federal Reserve and FDIC guidance and its recent consent order related to ASPN overdraft fees. The CFPB characterized these fees as “unanticipated” because financial institutions use overdraft assessment policies and processes that are “unintelligible for many consumers and that consumers cannot control,” such as settlement timing, posting order, funds availability, and balance used for overdraft fees. The CFPB noted: “Certain financial institution practices can exacerbate the injury from unanticipated overdraft fees from APSN transactions by assessing overdraft fees in excess of the number of transactions for which the account lacked sufficient funds. In these APSN situations, financial institutions assess overdraft fees at the time of settlement based on the consumer’s available balance reduced by debit holds, rather than the consumer’s ledger balance, leading to consumers being assessed multiple overdraft fees when they may reasonably have expected only one.” Based on this policy, it appears that the CFPB would view ASPN overdraft fees as unfair even if a bank were to clearly disclose to consumers that an overdraft fee applies to APSN transactions.
CFPB Compliance Bulletin 2022-06 also addresses the practice of charging a fee for returned deposited items. The CFPB stated that “[b]lanket policies of charging Returned Deposited Item fees to consumers for all returned transactions irrespective of the circumstances or patterns of behavior on the account are likely unfair….” The CFPB’s analysis focuses on the consumers’ lack of awareness and control over whether the check will be returned unpaid. The CFPB suggested that these fees could be charged if a bank’s “policy and practice are well-tailored to address the issue, do not harm consumers in some other way, minimize losses to the depository institution that would be passed through to consumers, bolster the integrity of the banking system through loss avoidance, and, in the case of fraud, prevent conduct that offends public policy as embodied in statutes and common law.” Although the CFPB stated that these fees would be permissible for a consumer that is (a) repeatedly depositing bad checks from the same originator or (b) depositing unsigned checks, the CFPB ignores the impracticableness of this approach as it likely requires manual processing of the returned checks.
As we have previously commented, the CFPB continues to avoid promulgating transparent rules using notice and comment procedures. Instead, the CFPB is relying on these policy statements to dictate what is “likely” to be considered a UDAAP under the CFPA. By issuing these general policy statements, which the CFPB has stated “do not impose any legal requirements on external parties,” together with prior blog posts, several overdraft studies, and enforcement actions, the CFPB has made it difficult for banks seeking to comply with the promulgated rules to identify clear requirements. As a result, to avoid regulatory scrutiny and mitigate 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 could be later classified as “junk fees.”