Based on the CFPB’s rulemaking agenda issued in December 2013, we continue to expect overdraft programs to be the subject of another CFPB white paper and/or an advance notice of proposed rulemaking this year.  (In June 2013, the CFPB issued a white paper reporting its initial data findings on overdraft programs.)

Any future CFPB rulemaking on overdraft programs is likely to rely in some measure on the CFPB’s authority to prohibit unfair, deceptive or abusive acts or practices.  Recently-issued guidance on continuous or extended overdraft or negative balance fees from certain of the FDIC’s regional offices discusses how a bank’s programs and practices relating to such fees could give rise to violations of Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices.  The guidance encourages bankers “to review the information provided to consumers concerning overdraft services, particularly any extended overdraft and negative balance fees, and conduct transactional testing to ensure that the bank is charging these fees as disclosed from a reasonable consumer’s perspective.”

The guidance includes a series of issues a bank should consider when reviewing bank products and transactions.  For example, the guidance suggests that if a bank’s disclosures provide that overdraft fees may be charged “after” a certain number of days, the bank should consider whether its system ensures that such fees will not be charged on or before the indicated day.  It further suggests that a bank consider how it handles continuous overdraft situations that occur over a weekend or holiday period where the final day of the period to cure an overdraft falls on a non-business day.  The guidance explains that if a bank assesses a fee based on calendar days but only allows customers to cure an overdraft on business days, it could be problematic if the bank’s disclosures indicate that customers have a certain number of days to cure before an overdraft fee is assessed.  

To illustrate this problem, the guidance observes that if a bank were to charge a continuous overdraft fee after three days and an overdraft occurred on a Thursday, the third calendar day after the overdraft would be Sunday.  As Sunday would likely be a non-processing day, the bank would only be giving the customer one day, not three, to cure the default if it charged the fee the prior Friday. The guidance notes that such practices have been cited as unfair in violation of Section 5. 

Other suggested issues for banks to consider include whether assessment of bank service charges can cause an extended negative balance fee to be assessed and the amount of time provided between when a customer receives notice of an overdraft and when a continuous overdraft or negative balance fee is assessed.  The guidance advises banks that find discrepancies between their disclosures and the fees assessed to consider issuing new disclosures and making voluntary restitution.  It further indicates that correcting such issues, including making full restitution, will be considered by the FDIC in reviewing a bank’s disclosures and practices.