It’s fall in Mississippi again, and all our favorite sounds that accompany our favorite pastime, college football, are back. From marching bands to roaring crowds to weekly complaints about officiating, these sounds make up the soundtrack of our most wonderful time of the year. While fans in the neighboring states of Louisiana, Alabama, and Georgia may not be quite as familiar with the last sound I mentioned, it is quite prevalent following football games in Mississippi.

My alma mater and its rival, each of which often feel forgotten by the conference office, typically spend the week following a loss grumbling about various conspiracy theories of how officials were ordered to ensure the teams with the largest fan bases and most recognizable brands played for the championship in a made-for-TV prime-time game. By the end of a week of slow-motion Twitter posts and exaggerated first-hand accounts, Mississippi fans are convinced that the officials didn’t just miss a call or two; they totally changed the rules of the game to make sure the league’s “favored” team won. Even though our neighboring peers don’t understand our plight, Mississippians may finally find a sympathetic voice in the nation’s community bankers, who now feel that the Consumer Financial Protection Bureau (CFPB) is doing the same thing to them with respect to overdrafts.

In its winter 2015 Supervisory Highlights, the CFPB first addressed findings related to “one or more financial institutions [that] switched from a ledger-balance method to an available-balance method for purposes of deciding whether to authorize signature-based debit transactions and other electronic transactions . . . and . . . whether a transaction results in an overdraft and/or whether an overdraft fee is assessed when a transaction is settled.” The relevant section of the Supervisory Highlights noted that, “in some instances, transactions that would not have resulted in an overdraft (or an overdraft fee) under a ledger-balance method did result in an overdraft (and an overdraft fee) under an available-balance method.” Not only that, but the CFPB also concluded in its winter 2015 Supervisory Highlights that these practices were found to be deceptive when the change in calculation method was not disclosed at all or was insufficiently disclosed and, as a result, customers were misled as to the circumstances under which overdraft fees would be assessed. Nevertheless, it seemed clear from the winter 2015 Supervisory Highlights that the purported injury to consumers resulting from this change was caused by “the misimpressions created by the disclosures.”

Then, in July 2018, the Federal Reserve Board issued a Consumer Compliance Supervision Bulletin that focused further on these “Authorized Positive, Settled Negative” (APSN) transactions by stating that “certain bank practices related to charging overdraft fees to consumers have been identified as unfair or deceptive acts or practices in violation of section 5 of the [Federal Trade Commission (FTC)] Act . . . when a bank makes misleading omissions or representations concerning its overdraft program.” The article cited the example of a bank that was found to violate Section 5 of the FTC Act for imposing overdraft fees on point-of-sale, signature-based transactions based on insufficient funds in the account’s available balance at the time of posting, even though the bank had previously authorized the transaction based on sufficient funds in the account’s balance when the transaction was approved. Nevertheless, since the stated basis for the violation of Section 5 of the FTC Act was “misleading omissions or representations,” and a recommended step for identifying and managing related Unfair or Deceptive Acts or Practices (UDAP) risks was to “[u]nderstand the bank’s overdraft processing methodology and ensure that the bank does not provide incorrect information to consumers about that methodology,” most banks reasonably assumed that it was the failure to match account disclosures with the APSN methodology that created the UDAP problem, and not the APSN methodology itself.

In June 2019, the Federal Deposit Insurance Corporation (FDIC) joined the officiating huddle in the middle of the field when it issued its Consumer Compliance Supervisory Highlights, which stated that APSN overdraft methods, “[i]f not properly disclosed . . . can lead to violations of consumer laws and regulations, including Section 5 of the Federal Trade Commission Act for unfair and/or deceptive acts or practices.” The FDIC concluded its article by listing two examples of actions banks have taken to mitigate risks related to these types of transactions: (i) providing clear and conspicuous disclosures with respect to charging overdraft fees in connection with use of the available balance method; and (ii) ensuring that any transaction authorized against a positive available balance does not incur an overdraft fee, even if it later settles against a negative available balance.

Following these pronouncements, most banks believed that either of these examples of actions taken to mitigate UDAP risks could be pursued, and charging overdraft fees on APSN transactions would not be a UDAP violation so long as the bank’s account agreement and other disclosures made it clear when and how an overdraft fee would be charged on such transactions. However, Regions apparently found out the hard way in September that the CFPB favors the latter mitigation option over the former, and that was reinforced on October 26, when the CFPB issued guidance on “Charging Illegal Junk Fees on Deposit Accounts.”

On September 28, 2022, the CFPB announced that it had ordered Regions to pay $50 million into the CFPB’s victims’ relief fund and refund at least $141 million to customers “harmed by its illegal surprise overdraft fees,” which were defined as fees charged by Regions “even after telling consumers they had sufficient funds at the time of the transactions.” The press release issued by the CFPB claimed that regulators have long cautioned banks against charging this type of overdraft fee, but it made no mention of whether or not the APSN method was appropriately disclosed in account opening documentation by Regions. It also claimed that Regions leadership knew about and could have discontinued its surprise overdraft fee practices years earlier, but chose to wait while Regions pursued other changes that would generate new fee revenue to make up for ending illegal fees. While the press release and related order certainly sounded as if regulatory scrutiny had shifted from appropriate disclosure of the practice to the practice itself, banks were still a little uncertain about what circumstances were involved in the Regions order since few details were released. The order merely argued that “consumers did not understand, nor could they reasonably avoid, these fees because they resulted from counter-intuitive, complex processes that are outside the control of the consumer.”

Then, on October 26, 2022, the CFPB clarified further through a Consumer Financial Protection Circular that the flag was thrown against Regions for simply allowing overdraft fees to be charged on APSN transactions, regardless of how the bank’s overdraft methods were disclosed. The circular, which was a policy statement advising other regulators on how to enforce federal consumer financial law, began with the following question: “Can the assessment of overdraft fees constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA), even if the entity complies with the Truth in Lending Act (TILA) and Regulation Z, and the Electronic Funds Transfer Act (EFTA) and Regulation E?”

The answer, according to the circular, is a resounding yes. The CFPB added that “financial institutions risk charging overdraft fees that consumers would not reasonably anticipate when the transaction incurs a fee even though the account had a sufficient available balance at the time the financial institution authorized payment (i.e., APSN).” Specifically, the circular cited the following two situations as examples of potentially unfair acts or practices involving overdraft fees that consumers would not reasonably anticipate:

• APSN transactions that are assessed on debit card transactions for consumers who have opted in to overdraft coverage for one-time debit card and ATM transactions but likely did not expect overdraft fees for these transactions since they were authorized on available balances.

• Assessing overdraft fees in excess of the number of transactions for which the account lacked sufficient funds by assessing an overdraft fee 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.

As a result of the recent Regions order and the circular issued by the CFPB, community banks should probably consult “the review booth” and reconsider whether or not they should charge overdrafts for APSN transactions, regardless of how their disclosures have been crafted. Otherwise, they may find themselves joining the chorus of Mississippi football fans bemoaning questionable officiating after a tough exam.