CFPB Finds Multiple Consumer Finance Violations in National Bank’s Overdraft Practices

Financial Services Law

On August 20, the Consumer Financial Protection Bureau (CFPB) entered a consent order with a national bank over the sales and marketing practices for its optional overdraft service called Debit Card Advance (DCA). DCA provides overdraft protection for ATM and one-time debit card transactions that exceed the available balance by more than $5. The consent order finds that the national bank’s practices violated the Electronic Fund Transfer Act (EFTA) and the Consumer Financial Protection Act of 2010 (CFPA), particularly the abusive and deceptive prongs of UDAAP.

What happened

From January 2014 through December 2018, the practice for store enrollment in DCA began with an oral presentation about the service. After the customer indicated a preference (i.e., whether or not to enroll in DCA), an employee would print out a form of DCA disclosures with the preference prechecked. This form was provided along with the account-opening authorization form for the customer to sign before opening the account. The off-site account-opening procedure was similar, but an employee would fill out the DCA form based on the customer’s orally stated preference and then provide it to the customer for a signature.

The CFPB’s consent order asserts that this practice failed to meet Regulation E’s affirmative consent requirement because customers consented before reviewing the written disclosures. The CFPB also focused on the fact that scripts and talking points for the oral presentation of DCA, which were created by the individual managers, sometimes referred to DCA as a “free” service and a “feature” of the bank’s checking accounts. These scripts also allegedly blurred the lines between DCA and the bank’s standard overdraft service. The CFPB found these presentations, combined with the fact that written disclosures were provided only after consent had been given, to be an abusive practice under UDAAP.

Additionally, the CFPB found deceptive practices in the way in which DCA was marketed and sold over the phone and through the mail. The CFPB also found Fair Credit Reporting Act (FCRA) and Regulation V violations in the national bank’s furnishing practices. The consent order requires the national bank to pay an estimated $97 million in restitution to about 1.42 million consumers. Additionally, there is a $25 million civil money penalty.

Why it matters

On the same day, the national bank issued its own statement in which the bank denied wrongdoing but agreed that it will cooperate with the CFPB. The bank also asserted that it will continue to offer its DCA service.

The CFPB’s consent order relies on a broad interpretation of certain legal concepts, such as “affirmative consent” and “abusive,” that go beyond the literal language of the statutes. To reduce the risk of CFPB interest, financial institutions must be proactive in reading the tea leaves from the CFPB and adjusting their practices accordingly. This includes not only a re-evaluation of marketing and sales practices for overdraft services, but also responding to the CFPB’s renewed focus on credit reporting, TILA and fair lending.

Manatt’s consumer financial services team continues to carefully monitor the CFPB’s enforcement actions and guidance. If you require assistance, please contact the authors or the Manatt professional with whom you work.

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