Recent Regulatory Guidance

Over the course of the past few weeks, both the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB or Bureau) have released guidance for banks that is worth mentioning. First, on April 26, 2023, the FDIC issued a Financial Institution Letter (FIL) titled Supervisory Guidance on Charging Overdraft Fees for Authorize Positive, Settle Negative Transactions (FIL-19-2023).

In this FIL, the FDIC set forth risks that may arise when banks assess overdraft fees on transactions that were authorized on a positive balance but settled on a negative balance (APSN). The FDIC concluded that consumers cannot reasonably avoid fees charged on APSN transactions; therefore, there is a potential UDAP (unfair, deceptive, or abusive acts or practices) risk associated with the practice. The FDIC went on to conclude that substantial risks may arise from these practices when based on either the available or ledger balance methods, but that these risks may be greater when the available balance method is used because temporary holds may cause a consumer to incur multiple nonsufficient funds fees when he or she could have reasonably expected to incur only one charge.

The FDIC encouraged banks to review disclosures and account agreements to make sure that their actual practices are accurately and clearly disclosed but, importantly, noted that even accurately disclosing fees to be charged on APSN transactions will not mitigate the UDAP risk associated with the practice. In other words, the FDIC joined the CFPB in discouraging the practice altogether, regardless of disclosures.

Shortly after the release of FIL-19-2023 by the FDIC, the CFPB issued Consumer Financial Protection Circular 2023-02, Reopening Deposit Accounts That Consumers Previously Closed (the Circular), posing the following question: After consumers have closed deposit accounts, if a financial institution unilaterally reopens those accounts to process a debit (i.e., withdrawal, ACH transaction, or check) or deposit, can it constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)?

The CFPB’s answer to the question it posed was yes. The Bureau set forth many reasons for making this determination, but ultimately, the Bureau’s view is that this is a practice that meets the CFPA’s definition of unfair as one that causes or is likely to cause substantial injury to a consumer that is not reasonably avoidable and is not outweighed by benefits to the consumer or to competition. According to the CFPB, if a bank reopens an account that was previously closed by a consumer without prior approval or timely notice, the consumer may face one or more of the following injuries that he or she is unable to avoid (or fail to reap some greater benefit): penalty fees for reopening a closed account; account maintenance fees that may have been previously avoidable; increased risk of unauthorized use of the account; or potentially overdrawing the account, resulting in negative information reported to a consumer reporting agency and the accumulation of fees.

Similar to its (and the FDIC’s) stance regarding overdraft fees assessed on APSN transactions, the CFPB provided that even if the practice of potentially reopening an account is disclosed to the consumer in the bank’s account agreement, this does not protect the consumer as he or she does not negotiate these terms and will have no control over whether or not the account is reopened and the related consequences.

Bankers Compliance Task Force Highlight

Recently, the Bankers Compliance Task Force (BCTF), supported by Jones Walker LLP, held its 30th Anniversary meeting and celebration. The BCTF is a group of community and regional financial institutions that work together to address mutual compliance problems and provide support and training as a group. At the 30th Anniversary meeting, the BCTF members and guests were introduced to three highly experienced banking compliance specialists who recently joined the Jones Walker Banking & Financial Services Industry Team: Patsy Parkin, Dyanne Ray, and Lisa Smith. These three specialists will provide compliance guidance and answers to compliance-related questions as well as perform board and employee training and many independent compliance review services, including fair lending reviews, Bank Secrecy Act (BSA) reviews, loan and deposit compliance reviews, and many more.

After the introductions to the new team members, the group heard an FDIC examiner relay “hot” issues noted in recent examinations and another guest speaker on the topic of check fraud prevention and how to handle lack of response from large banks of first deposit following an item return. Following a celebratory lunch and giveaways, two training sessions were held. One focused on the CFPB’s guidance related to the final rules on small-business data collection, and the other focused on significant recent changes to the FDIC’s examination request list. The meeting wrapped up with an overview of significant updates from all federal banking agencies on fair lending and BSA.