CFPB Director Chopra used the release of two new reports about bank overdraft practices to warn banks—and responsible executives—that they could be at risk if the banks engage in overdraft practices deemed to violate Dodd-Frank’s “UDAAP” prohibition. Prior to the issuance of the two new reports, the Bureau’s most recent report on overdrafts was issued in August 2017 under the leadership of former Director Cordray. … Continue Reading
Overdrafts
Massachusetts Division of Banks issues supervisory alert on NSF fees for representments
The Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation has issued a supervisory alert to warn financial institutions of the potential legal and regulatory risks arising from NSF fees charged on the representment of unpaid transactions.
The alert addresses the common scenario in which a financial institution charges an NSF fee when an ACH item is presented for payment from a consumer’s account and is declined due to insufficient funds in the account to cover the item. … Continue Reading
This week’s podcast: Still in the crosshairs: an update on bank overdraft practices
Despite having been a target for over a decade, bank overdraft practices still remain a focus of regulators and plaintiffs’ class action attorneys. We discuss federal and state legislative, regulatory, and enforcement developments; theories currently used by plaintiffs’ attorneys to challenge overdraft practices, including retry payment claims; litigation involving alleged Regulation E violations; and the use of arbitration provisions to help avoid class action exposure.… Continue Reading
New York enacts requirements for check processing by banks; Ballard Spahr to hold Sept. 13 webinar on overdraft practices
At the end of last month, former New York Governor Cuomo signed into law a bill that amends the state’s Banking Law to require banks to follow certain check processing practices. The amendments become effective on January 1, 2022.
The new law applies to “consumer checking accounts” offered by “banking institutions.”… Continue Reading
Acting Comptroller of the Currency Hsu testifies about OCC activity on overdrafts, CRA, bank partnerships, alternative data
This past Tuesday, Acting Comptroller of the Currency Michael Hsu appeared as a witness at the Senate Banking Committee’s hearing, “Oversight of Regulators: Does our Financial System Work for Everyone?”
In his written and oral testimony, Mr. Hsu stressed as an overall theme the need for the OCC to prohibit “predatory and discriminatory practices while promoting financial inclusion.” … Continue Reading
Afterpay faces putative class action alleging it failed to warn consumers of possible overdraft fees
Afterpay, a buy-now, pay-later company, is facing a putative class action lawsuit in a California federal district court. The complaint alleges that Afterpay misled customers in representing that its services allowed customers to “pay for purchases at a later date, with no interest, no fees, and no hassle” when “there are huge, undisclosed fees and interest associated with using the service.”… Continue Reading
This week’s podcast: Key current issues of interest to banks, with special guest Richard Hunt, President and CEO of Consumer Bankers Association
Mr. Hunt shares his perspective on a range of issues, including how Rohit Chopra, CFPB Director-nominee, is likely to approach his new role, the CFPB’s likely approach to innovation and overdraft rulemaking under Mr. Chopra’s leadership, how banks are engaging with data aggregators, the OCC’s role and expectations for a new Comptroller, the status of Community Reinvestment Act rulemaking, and the potential for legislative changes.… Continue Reading
Brookings article on overdrafts could foreshadow increased CFPB attention to overdraft practices
An article recently published by the Brookings Institution as an op-ed entitled “A few small banks have become overdraft giants” serves as a warning that bank overdraft practices are likely to face increased attention from the “new CFPB.”
Authored by Aaron Klein, a Brookings Senior Fellow, the article reports that overdraft revenues accounted for more than half of the net income of six small banks in 2020 and criticizes regulators for “tolerat[ing] banks that are mostly or entirely dependent on overdraft fees for profitability.” … Continue Reading
State AGs urge CFPB not to change overdraft rule and to consider its expansion
24 state attorneys general, the D.C. attorney general, and the Executive Director of the Hawaii Office of Consumer Protection have sent a joint comment letter to the CFPB urging it not to make any changes to the Regulation E rule that limits the ability of financial institutions to charge overdraft fees for paying ATM and one-time debit card transactions that overdraw a consumer’s account (Overdraft Rule). … Continue Reading
FDIC 2018 Consumer Compliance Supervisory Highlights focuses on overdraft, RESPA, Regulation E, deferment, and finance charge calculation exam findings
Last week, the FDIC published its Consumer Compliance Supervisory Highlights that provides observations about its consumer compliance supervision activities in 2018. Importantly, the highlights include anonymized 2018 exam findings regarding violations of consumer protection laws and other information to help financial institutions stay abreast of issues and trends identified during exams and assist them in mitigating potential risks.… Continue Reading