Rule2023-10982
Consumer Financial Protection Circular 2023-02: Reopening Deposit Accounts That Consumers Previously Closed
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 24, 2023
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) has issued Consumer Financial Protection Circular 2023-02, titled, "Reopening Deposit Accounts That Consumers Previously Closed." In this circular, the CFPB responds to the question, "After consumers have closed deposit accounts, if a financial institution unilaterally reopens those accounts to process a debit (i.e., withdrawal, ACH transaction, check) or deposit, can it constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)?"
Full Text
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<title>Federal Register, Volume 88 Issue 100 (Wednesday, May 24, 2023)</title>
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[Federal Register Volume 88, Number 100 (Wednesday, May 24, 2023)]
[Rules and Regulations]
[Pages 33545-33548]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10982]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
Consumer Financial Protection Circular 2023-02: Reopening Deposit
Accounts That Consumers Previously Closed
AGENCY: Consumer Financial Protection Bureau.
ACTION: Consumer financial protection circular.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) has issued
Consumer Financial Protection Circular 2023-02, titled, ``Reopening
Deposit Accounts That Consumers Previously
[[Page 33546]]
Closed.'' In this circular, the CFPB responds to the question, ``After
consumers have closed deposit accounts, if a financial institution
unilaterally reopens those accounts to process a debit (i.e.,
withdrawal, ACH transaction, check) or deposit, can it constitute an
unfair act or practice under the Consumer Financial Protection Act
(CFPA)?''
DATES: The Bureau released this circular on its website on May 10,
2023.
ADDRESSES: Enforcers, and the broader public, can provide feedback and
comments to <a href="/cdn-cgi/l/email-protection#a5e6ccd7c6d0c9c4d7d6e5c6c3d5c78bc2cad3"><span class="__cf_email__" data-cfemail="33705a4150465f52414073505543511d545c45">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Terry J. Randall, Senior Counsel for
Policy and Strategy, Office of Enforcement, at (202) 435-9497. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#793a3f293b26381a1a1c0a0a101b1015100d00391a1f091b571e160f"><span class="__cf_email__" data-cfemail="0645405644594765656375756f646f6a6f727f466560766428616970">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Question Presented
After consumers have closed deposit accounts, if a financial
institution unilaterally reopens those accounts to process a debit
(i.e., withdrawal, ACH transaction, check) or deposit, can it
constitute an unfair act or practice under the Consumer Financial
Protection Act (CFPA)?
Response
Yes. After consumers have closed deposit accounts, if a financial
institution unilaterally reopens those accounts to process debits or
deposits, it can constitute an unfair practice under the CFPA. This
practice may impose substantial injury on consumers that that they
cannot reasonably avoid and that is not outweighed by countervailing
benefits to consumers or competition.
Background
Consumers may elect to close a deposit account for a variety of
reasons. For example, after moving to a new area, a consumer may elect
to use a new account that they opened with a different financial
institution that has a branch close to their new home. A consumer also
might close an account because they are not satisfied with the account
for another reason, such as the imposition of fees or the adequacy of
customer service.
The process of closing a deposit account often takes time and
effort. For example, closing an account typically involves taking steps
to bring the account balance to zero at closure. The financial
institution typically returns any funds remaining in the account to the
consumer at closure and the consumer typically must pay any negative
balance at closure. Some institutions require customers to provide a
certain period of notice (e.g., a week) prior to closing the account to
provide time for the financial institution to process any pending
debits or deposits. Deposit account agreements typically indicate that
the financial institution may return any debits or deposits to the
account that the financial institution receives after closure and faces
no liability for failing to honor any debits or deposits received after
closure.
Sometimes after a consumer completes all of the steps that the
financial institution requires to initiate the process of closing a
deposit account and the financial institution completes the request,
the financial institution unilaterally reopens the closed account if
the institution receives a debit or deposit to the closed account.
Financial institutions sometimes reopen an account even if doing so
would overdraw the account, causing the financial institution to impose
overdraft and non-sufficient funds (NSF) fees. Financial institutions
may also charge consumers account maintenance fees upon reopening, even
if the consumers were not required to pay such fees prior to account
closure (e.g., because the account previously qualified to have the
fees waived).
In addition to subjecting consumers to fees, when a financial
institution processes a credit through an account that has reopened,
the consumer's funds may become available to third parties, including
third parties that do not have permission to access their funds.
The Consumer Financial Protection Bureau (CFPB) has brought an
enforcement action regarding the practice of account reopening under
the CFPA's prohibition against unfair, deceptive, or abusive
practices.\1\ The CFPB found that a financial institution engaged in an
unfair practice by reopening deposit accounts consumers had previously
closed without seeking prior authorization or providing timely notice.
This practice of reopening closed deposit accounts caused some account
balances to become negative and potentially subjected consumers to
various fees, including overdraft and NSF fees. In addition, when the
financial institution reopened an account to process a deposit,
creditors had the opportunity to initiate debits to the account and
draw down the funds, possibly resulting in a negative balance and the
accumulation of fees. These practices resulted in hundreds of thousands
of dollars in fees charged to consumers. The CFPB concluded that the
institution's practice of reopening consumer accounts without obtaining
consumers' prior authorization and providing timely notice caused
substantial injury to consumers that was not reasonably avoidable or
outweighed by any countervailing benefit to consumers or to
competition.
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\1\ USAA Federal Savings Bank, File No. 2019-BCFP-0001 (Jan. 3,
2019).
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Analysis and Findings
A financial institution's unilateral reopening of deposit accounts
that consumers previously closed can constitute a violation of the
CFPA's probation on unfair acts or practices.\2\
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\2\ Depending on the circumstances, reopening a closed deposit
account may also implicate the CFPA's prohibition on deceptive or
abusive acts or practices. 12 U.S.C. 5531, 5536. See generally
``Statement of Policy Regarding Prohibition on Abusive Acts or
Practices,'' 88 FR 21883 (Apr. 12, 2023). This conduct may also
violate other applicable laws, including State law. See, e.g.,
Jimenez v. T.D. Bank, N.A., 2021 WL 4398754, at *16 (D.N.J., 2021)
(private plaintiff stated a claim for unfair practices under
Massachusetts law where bank allegedly ``either opened a new account
in her name or reopened a previously closed account, without her
knowledge and without seeking or obtaining her authorization'' and
then charged her fees).
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Under the CFPA, an act or practice is unfair when it causes or is
likely to cause consumers substantial injury that is not reasonably
avoidable by consumers and the injury is not outweighed by
countervailing benefits to consumers or to competition.\3\
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\3\ 12 U.S.C. 5531(c)(1).
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Unilaterally reopening a closed deposit account to process a debit
or deposit may cause substantial injury to consumers.
Substantial injury includes monetary harm, such as fees paid by
consumers due to the unfair practice. Actual injury is not required;
significant risk of concrete harm is sufficient.\4\ Substantial injury
can occur when a small amount of harm is imposed on a significant
number of consumers.\5\
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\4\ See, e.g., F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236,
246 (3d Cir. 2015) (interpreting ``substantial injury'' under the
Federal Trade Commission Act (FTC Act), 15 U.S.C. 45(n), which uses
the same language as the CFPA, 12 U.S.C. 5531(c)(1)).
\5\ See, e.g., Orkin Exterminating Co. v. Fed. Trade Comm'n, 849
F.2d 1354, 1365 (11th Cir. 1988) (interpreting ``substantial
injury'' under the FTC Act).
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After a consumer has closed a deposit account, a financial
institution's act of unilaterally reopening that account upon receiving
a debit or deposit may cause monetary harm to the consumer. Financial
institutions frequently charge fees after they reopen an account. For
example, consumers may incur penalty
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fees \6\ when an account that they closed is reopened by the financial
institution after receiving a debit or deposit. Since financial
institutions typically require a zero balance to close an account,
reopening a closed account to process a debit is likely to result in
consumers incurring penalty fees.
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\6\ In these circumstances, because there generally are no
benefits to charging fees on reopened accounts (see countervailing
benefits discussion below), such fees generally would function as
penalty fees which cause substantial injury.
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In addition to fees, reopening a consumer's account to accept a
deposit increases the risk that an unauthorized third party may gain
access to the consumer's funds (e.g., a person with the consumer's
account information who pulls funds from the account without the
consumer's authorization).
And if reopening the account overdraws the account and the consumer
does not repay the amount owed quickly, the financial institution may
furnish negative information to consumer reporting companies, which may
make it harder for the consumer to obtain a deposit account in the
future. Because reopening accounts that the consumer closed gives rise
to these risks of monetary harm, this practice may cause substantial
injury.
Consumers likely cannot reasonably avoid this injury.
An injury is not reasonably avoidable by consumers when consumers
cannot make informed decisions or take action to avoid that injury.
Injury that occurs without a consumer's knowledge or consent, when
consumers cannot reasonably anticipate the injury, or when there is no
way to avoid the injury even if anticipated, is not reasonably
avoidable.\7\
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\7\ See FTC v. Neovi, Inc., 604 F.3d 1150, 1158 (9th Cir. 2010)
(interpreting whether consumer's injuries were reasonably avoidable
under the FTC Act); Orkin Exterminating Co., 849 F.2d at 1365-66
(same); American Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 976 (D.C.
Cir. 1985) (same).
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Consumers often cannot reasonably avoid the risk of substantial
injury caused by financial institutions' practice of unilaterally
reopening accounts that consumers previously closed because they cannot
control one or more of the following circumstances: a third party's
attempt to debit or deposit money, the process and timing of account
closure, or the terms of the deposit account agreements.
First, without the consumer's consent or knowledge, a third party
may attempt to debit from or deposit to the closed account, prompting
their previous financial institution to reopen the account. For
example, a payroll provider may inadvertently send a consumer's
paycheck to the closed account, even if the consumer informed the
payroll provider about the account closure and directed them to deposit
their paycheck in a new account. Similarly, a merchant may take an
extended amount of time to process a refund to a customer's account for
a returned item or may use the wrong account information to process a
recurring monthly payment. Consumers cannot reasonably avoid these
types of injuries resulting from these types of actions by a third
party.
Second, financial institutions may require consumers to complete a
multi-step process before closing a deposit account, which can involve
completing paperwork in person, returning or destroying any access
devices, bringing the balance to zero, and fulfilling waiting periods.
When consumers begin this process, they likely will not know exactly
when the financial institution will fulfill their request to close the
account. Consumers, for example, do not control waiting periods or the
length of time it takes a financial institution to settle transactions
to bring a balance to zero. Consumers' lack of control over the
financial institution's account closure process and timeline may make
it more difficult for them to prevent debits and credits that will
reopen the account, since the account may close earlier than they
expect.
Finally, consumers may not have a reasonable alternative to
financial institutions that permit this practice because most deposit
contracts either permit or are silent on this practice. Further, to the
extent that deposit account agreements allow or disclose such
practices, these agreements typically are standard-form contracts
prepared by financial institutions that specify a fixed set of
terms.\8\ Consumers have no ability to negotiate the terms of these
agreements. Instead, financial institutions present these contracts to
consumers on a take-or-leave-it basis. Thus, even if deposit account
agreements reference this practice, consumers also have limited ability
to negotiate the terms of such contracts, and consumers can incur
injuries in circumstances beyond their control. Moreover, even if the
financial institution informs the consumer at the time that the account
is closed that the institution may reopen the account, pursuant to the
account agreement, the consumer will still generally lack the practical
ability to control whether the account will be reopened and to avoid
fees and other monetary harms.
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\8\ See American Fin. Servs. Ass'n, 767 F.2d at 977 (concluding
that certain practices were unfair even though disclosed and agreed
to in agreements because consumers had no ability to negotiate the
terms of form contracts).
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This injury is likely not outweighed by countervailing benefits to
consumers or competition.
Reopening a closed account does not appear to provide any
meaningful benefits to consumers or competition. To the extent
financial institutions are concerned about controlling their own costs
to remain competitive, they have alternatives to reopening a closed
account upon receiving a debit or deposit that could minimize their
expenses and liability. For example, the financial institution could
decline any transactions that they receive for accounts consumers
previously closed. In addition to minimizing the institution's costs,
not reopening these accounts may protect the financial institution
against the use of closed accounts to commit fraud.
Moreover, consumers do not generally benefit when a financial
institution unilaterally reopens an account that consumers previously
closed. Since financial institutions typically require consumers to
bring the account balance to zero before closing an account, reopening
an account in response to a debit will likely result in penalty fees
rather than payment of an amount owed by the consumer. While consumers
might potentially benefit in some instances where their accounts are
reopened to receive deposits, which then become available to them, that
benefit does not outweigh the injuries that can be caused by unilateral
account reopening. Such benefits are unlikely to be significant because
consumers can generally receive the same deposits in another way that
they would prefer (such as through a new account that they opened to
replace the closed account). And those uncertain benefits are
outweighed by the risk that deposited funds will be depleted before the
consumer can access (or is even aware of) the funds (e.g., through
maintenance or other fees assessed by the financial institution as a
result of the reopening or debits from the reopened account by third
parties).
Further, not reopening accounts may benefit consumers in certain
circumstances. For example, declining a deposit submitted to a closed
account alerts the fund's sender that they have incorrect account
information and may encourage the sender to contact the consumer to
obtain updated account information. Declining a debit also provides an
opportunity for the sender of the debit to inform the consumer of any
erroneous account information, providing the consumer with the
opportunity to make the payment with
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a current account or through another process.
For these reasons, government enforcers should consider whether a
financial institution has violated the prohibition against unfair acts
or practices in the CFPA if they discover that a financial institution
has unilaterally reopened accounts that consumers previously
About Consumer Financial Protection Circulars
Consumer Financial Protection Circulars are issued to all parties
with authority to enforce Federal consumer financial law. The CFPB is
the principal Federal regulator responsible for administering Federal
consumer financial law, see 12 U.S.C. 5511, including the Consumer
Financial Protection Act's prohibition on unfair, deceptive, and
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws
are also enforced by State attorneys general and State regulators, 12
U.S.C. 5552, and prudential regulators including the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, and the National
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2)
(exclusive enforcement authority for banks and credit unions with $10
billion or less in assets). Some Federal consumer financial laws are
also enforceable by other Federal agencies, including the Department of
Justice and the Federal Trade Commission, the Farm Credit
Administration, the Department of Transportation, and the Department of
Agriculture. In addition, some of these laws provide for private
enforcement.
Consumer Financial Protection Circulars are intended to promote
consistency in approach across the various enforcement agencies and
parties, pursuant to the CFPB's statutory objective to ensure Federal
consumer financial law is enforced consistently. 12 U.S.C. 5511(b)(4).
Consumer Financial Protection Circulars are also intended to
provide transparency to partner agencies regarding the CFPB's intended
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C.
5552(b) (consultation with CFPB by State attorneys general and
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB
and other agencies).
Consumer Financial Protection Circulars are general statements of
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They
provide background information about applicable law, articulate
considerations relevant to the Bureau's exercise of its authorities,
and, in the interest of maintaining consistency, advise other parties
with authority to enforce Federal consumer financial law. They do not
restrict the Bureau's exercise of its authorities, impose any legal
requirements on external parties, or create or confer any rights on
external parties that could be enforceable in any administrative or
civil proceeding. The CFPB Director is instructing CFPB staff as
described herein, and the CFPB will then make final decisions on
individual matters based on an assessment of the factual record,
applicable law, and factors relevant to prosecutorial discretion.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-10982 Filed 5-23-23; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.