This past January, the CFPB filed a lawsuit against TCF National Bank in Minnesota federal district court that alleged that the bank, in connection with offering overdraft services, violated the Consumer Financial Protection Act’s UDAAP prohibition and Regulation E (which implements the Electronic Funds Transfer Act).  Earlier this month, the district court granted in part TCF’s motion to dismiss the CFPB’s amended complaint and dismissed with prejudice the CFPB’s Regulation E claims.  This opinion represents a serious setback for the CFPB (1) specifically in connection with other similar overdraft protection cases in which the CFPB has alleged that a bank’s opt-in procedure violated Regulation E, and (2) generally in connection with a wide variety of cases in which the CFPB is seeking to recover damages and civil money penalties for alleged CFPA violaltions that predate July 21, 2011.

Although it was undisputed that TCF had provided the opt-in notice required by Regulation E, the CFPB alleged that TCF engaged in abusive and deceptive practices in connection with enrolling new customers in overdraft services and that it did not comply with the Regulation E requirements to provide a “reasonable opportunity” for customers to consent to overdraft services and to obtain the customer’s affirmative consent.

The court was unwilling to dismiss the CFPB’s UDAAP claims because it could not conclude that “the Bureau failed to plausibly allege abusive or deceptive conduct simply because the required notice was provided at some point during the account-opening process.”  However, the court would not allow the CFPB to assert UDAAP claims arising before July 21, 2011 (the CFPA’s effective date) using “a type of continuing-violation theory.”  The court observed that “accepting the Bureau’s argument theoretically could render unlawful every account opening ever conducted by TCF, since some of them occurred after the CFPA’s effective date.”

In dismissing the CFPB’s Regulation E claims, the court rejected the CFPB’s attempt to transform conduct that allegedly violated the CFPA into Regulation E violations.  According to the court, while the CFPA broadly attaches to abusive or deceptive practices, “Regulation E, on the other hand, specifies with almost surgical precision the information banks must convey to consumers in connection with overdraft services—a description of the services, the right to opt-in (or not) and so on—and the ways in which they may obtain consumers’ consent.”

The court determined that Regulation E’s “reasonable opportunity” requirement “concerns only the manner in which consent may be obtained, and nothing more.”  In the court’s view, Regulation E’s intent was “to delineate specific information banks must provide to customers, not to more broadly prevent misleading or deceptive conduct in connection with the opt-in decision—the purview of the CFPA.”  Because the amended complaint did not allege that TCF failed to provide reasonable or appropriate means for consumers to provide consent, the court concluded that the CFPB’s “reasonable opportunity” claim failed.

The court also characterized the CFPB’ claim that customers failed to “affirmatively consent” because they did not understand what they were agreeing to as an attempt to “squeeze the CFPA’s broader proscriptions against misleading conduct into [Regulation E].”  The court noted that the amended complaint contained no plausible allegation that TCF failed to “actually obtain” new or existing customers’ consent to overdraft services. (emphasis provided). Calling this deficiency “fatal,” the court observed that Regulation E “requires a bank to obtain ‘affirmative consent’ and nothing more, and it is not infused with the CFPA’s gloss of preventing ‘abusive’ or ‘deceptive’ conduct.  By the Bureau’s reckoning, it would not be enough to obtain a consumer express (or ‘affirmative’) consent, but rather a bank such as TCF would be required to obtain the customer’s informed consent, lest it violate Regulation E.” (emphasis provided).

Last month, the CFPB issued another report on checking account overdraft services and four one-page prototype model forms to replace the current Regulation E model form for banks to use to disclose overdraft fees and obtain a consumer’s consent to overdraft services.  In its Spring 2017 rulemaking agenda, as it did in its Fall 2015 agenda and Fall and Spring 2016 agendas, the CFPB stated that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”