Rule2024-22551
Consumer Financial Protection Circular 2024-05: Improper Overdraft Opt-In Practices
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
October 2, 2024
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) has issued Consumer Financial Protection Circular 2024-05, titled "Improper Overdraft Opt-In Practices." In this circular, the CFPB responds to the question, "Can a financial institution violate the law if there is no proof that it has obtained consumers' affirmative consent before levying overdraft fees for ATM and one-time debit card transactions?"
Full Text
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<title>Federal Register, Volume 89 Issue 191 (Wednesday, October 2, 2024)</title>
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[Federal Register Volume 89, Number 191 (Wednesday, October 2, 2024)]
[Rules and Regulations]
[Pages 80075-80077]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-22551]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
Consumer Financial Protection Circular 2024-05: Improper
Overdraft Opt-In Practices
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 2024-05, titled ``Improper
Overdraft Opt-In Practices.'' In this circular, the CFPB responds to
the question, ``Can a financial institution violate the law if there is
no proof that it has obtained consumers' affirmative consent before
levying overdraft fees for ATM and one-time debit card transactions?''
DATES: The CFPB released this circular on its website on September 17,
2024.
ADDRESSES: Enforcers, and the broader public, can provide feedback and
comments to <a href="/cdn-cgi/l/email-protection#a8ebc1dacbddc4c9dadbe8cbced8ca86cfc7de"><span class="__cf_email__" data-cfemail="afecc6ddccdac3cedddcefccc9dfcd81c8c0d9">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or at: <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#2764617765786644444254544e454e4b4e535e674441574509404851"><span class="__cf_email__" data-cfemail="b0f3f6e0f2eff1d3d3d5c3c3d9d2d9dcd9c4c9f0d3d6c0d29ed7dfc6">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Question Presented
Can a financial institution violate the law if there is no proof
that it has obtained consumers' affirmative consent before levying
overdraft fees for ATM and one-time debit card transactions?
Response
Yes. A bank or credit union can be in violation of the Electronic
Fund Transfer Act (EFTA) and Regulation E if there is no proof that it
obtained affirmative consent to enrollment in covered overdraft
services. The form of the records that demonstrate consumer consent to
enrollment may vary according to the channel through which the consumer
opts into covered overdraft services.
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Regulation E's overdraft provisions establish an opt-in regime, not
an opt-out regime, where the default condition is that consumers are
not enrolled in covered overdraft services. Financial institutions are
prohibited from charging fees for such services until consumers
affirmatively consent to enrollment. Violations of 12 CFR 1005.17(b)(1)
can be proven in part by showing evidence that a consumer was charged
an overdraft fee on a covered transaction where the available evidence
does not adequately validate that the consumer opted in.\1\
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\1\ Depending on the circumstances, a financial institution's
overdraft practices may also implicate the CFPA's prohibition on
unfair, deceptive, or abusive acts or practices. 12 U.S.C. 5531,
5536. See, e.g., Consumer Financial Protection Circular 2022-06,
Unanticipated Overdraft Fee Assessment Practices (Oct. 26, 2022).
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Regulatory Background
Regulation E implements the EFTA and governs the assessment of
certain overdraft fees. Specifically, before a financial institution
may charge a consumer a fee in connection with an ATM or one-time debit
transaction, Regulation E requires the financial institution to provide
consumers with a ``reasonable opportunity for the consumer to
affirmatively consent, or opt in'' to covered overdraft services, and
to obtain the consumer's ``affirmative consent, or opt in'' to such
services.\2\ Institutions are also required to provide consumers with a
written or electronic notice describing the institution's overdraft
services prior to opt in, and to provide consumers with confirmation of
the consumer's consent to enrollment in writing or electronically with
a notice informing the consumer of the right to revoke such consent.\3\
These rules do not apply to overdraft fees charged on written checks,
recurring debit transactions, or ACH transactions.
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\2\ 12 CFR 1005.17(b)(1)(ii) & (iii).
\3\ 12 CFR 1005.17(b)(1)(i) & (iv). 12 CFR 1005.13(b)(1)
requires a person to retain evidence of compliance with the
requirements of EFTA and Regulation E for a period of not less than
two years from the date disclosures are required to be made or
action is required to be taken. This is an independent legal
obligation, which does not change the fact that the absence of
records proving that an opt-in occurred is suggestive that a
consumer did not opt in.
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Analysis
As noted above, Regulation E sets forth an opt-in, rather than opt-
out, process before financial institutions are permitted to assess fees
for covered overdraft services. The opt-in provisions provide that,
absent affirmative enrollment by consumers, consumers' default status
is to not be enrolled in covered overdraft services. Regulation E's
opt-in provisions were established after the Federal Reserve Board
found that consumers who were automatically enrolled in overdraft
services may prefer to ``avoid fees for a service they did not
request.'' \4\ Therefore, consistent with this opt-in design, when
determining compliance with Regulation E's opt-in provisions,
regulators and enforcers should inspect the financial institutions'
records to determine whether there is evidence of affirmative consent
to enrollment in covered overdraft services.
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\4\ Electronic Fund Transfers, 74 FR 59033, 59038 (Nov. 17,
2009) (amending 12 CFR part 205).
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In the CFPB's supervisory work, examinations have found that some
institutions have been unable to provide evidence that consumers had
opted into overdraft coverage before they were charged fees for ATM and
one-time debit transactions. While some institutions maintained
policies and procedures relating to Regulation E's overdraft opt-in
requirements, supervisory examinations found that the institutions were
unable to show that these policies and procedures were actually
followed with respect to individual consumers. In response to
examination findings, institutions began maintaining records to prove
the consumer's affirmative consent to enrollment in covered overdraft
services.
In supervisory and enforcement work, the CFPB has also identified
numerous other violations of law relating to Regulation E's overdraft
opt-in requirements over the years. These violations have included, for
example: the failure of institutions to obtain consumers' affirmative
consent to enrollment in covered overdraft services,\5\ and obtaining
consumers' opt-in to covered overdraft services through deceptive and
abusive acts or practices.\6\ The prevalence of violations related to
overdraft opt in underscores the need for effective supervision and
enforcement of Regulation E's overdraft opt-in provisions.
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\5\ See, e.g., CFPB Consent Order, In re Atlantic Union Bank,
No. 2023-CFPB-0017 (Dec. 7, 2023); CFPB Consent Order, In re Regions
Bank, No. 2015-CFPB-0009 (Apr. 28, 2015); Supervisory Highlights,
Summer 2015 Edition, at 23, available at <a href="https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf">https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf</a>.
\6\ See, e.g., CFPB Consent Order, In re TD Bank, N.A., No.
2020-BCFP-0007 (Aug. 20, 2020); CFPB v. TCF National Bank,
Stipulated Final Judgment and Order, No. 17-cv-00166 (July 20,
2018).
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Form of Records Evidencing Opt-In
The form of the records that demonstrate consumer consent to
enrollment may vary according to the channel through which the consumer
opts into covered overdraft services. For example:
<bullet> For consumers who opt into covered overdraft services in
person or by postal mail, a copy of a form signed or initialed by the
consumer indicating the consumer's affirmative consent to opting into
covered overdraft services would constitute evidence of consumer
consent to enrollment.
<bullet> For consumers who opt into covered overdraft services over
the phone, a recording of the phone call in which the consumer elected
to opt into covered overdraft services would constitute evidence of
consumer consent to enrollment.
<bullet> For consumers who opt into covered overdraft services
online or through a mobile app, a securely stored and unalterable
``electronic signature'' as defined in the E-Sign Act (15 U.S.C.
7006(5)) conclusively demonstrating the specific consumer's action to
affirmatively opt in and the date that the consumer opted in would
constitute evidence of consumer consent to enrollment.
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
[[Page 80077]]
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. 2024-22551 Filed 10-1-24; 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.