Supervisory Highlights Junk Fees Update Special Edition, Issue 31, Fall 2023, 71534-71539 [2023-22869]
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Federal Register / Vol. 88, No. 199 / Tuesday, October 17, 2023 / Notices
A third interim extension under 35
U.S.C. 156(d)(5) of the term of U.S.
Patent No. 7,199,162 was granted on
October 10, 2023, for a period of one
year from the twice-extended expiration
date of the ‘162 patent.
Brian Hanlon,
Acting Deputy Commissioner for Patents,
United States Patent and Trademark Office.
[FR Doc. 2023–22836 Filed 10–16–23; 8:45 am]
BILLING CODE 3510–16–P
CONSUMER FINANCIAL PROTECTION
BUREAU
Supervisory Highlights Junk Fees
Update Special Edition, Issue 31, Fall
2023
Consumer Financial Protection
Bureau.
ACTION: Supervisory Highlights.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB or Bureau) is
issuing its thirty first edition of
Supervisory Highlights.
DATES: The findings included in this
report cover examinations in the areas
of deposits, auto servicing, and
remittances that generally were
completed between February 2023 and
August 2023. The report also describes
risks identified in connection with
payment platforms that parents,
guardians, and students use to pay for
school lunches.
FOR FURTHER INFORMATION CONTACT:
Jaclyn Sellers, Senior Counsel, at (202)
435–7449. If you require this document
in an alternative electronic format,
please contact CFPB_Accessibility@
cfpb.gov.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
1. Introduction
As part of its emphasis on fair
competition, the Consumer Financial
Protection Bureau (CFPB) has launched
an initiative, consistent with its legal
authority, to scrutinize junk fees
charged by banks and financial
companies. Junk fees are typically not
subjected to the normal forces of
competition, leading to excessive costs
for services that a consumer may not
even want. For example, certain banks
and financial companies might hide
these unavoidable or surprise charges or
disclose them only at a later stage in the
consumer’s purchasing process, if at all.
The CFPB has observed that
supervised institutions have started to
compete more when it comes to fees. In
recent years, multiple banks have
announced they were eliminating
overdraft fees or otherwise updating
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their policies to be more consumer
friendly.1 And many have announced
that they are eliminating non-sufficient
fund (NSF) fees on consumer deposit
accounts.2
Supervision continues to focus
significant resources on identifying and
eliminating junk fees charged by
supervised institutions. Significantly,
financial institutions are refunding over
$120 million to consumers for
unanticipated overdraft fees and unfair
NSF fees. This special edition of
Supervisory Highlights updates the
public on supervisory work completed
since the CFPB published the March
2023 Supervisory Highlights Junk Fees
Special Edition. In total, for the topics
covered in this edition, Supervision’s
work has resulted in institutions
refunding over $140 million to
consumers.
The findings included in this report
cover examinations in the areas of
deposits, auto servicing, and
remittances that generally were
completed between February 2023 and
August 2023.3 The report also describes
risks identified in connection with
payment platforms that parents,
guardians, and students use to pay for
school lunches. Additionally, consistent
with the statutory requirement for
Supervision to identify and consider
‘‘risks to consumers’’ throughout its
supervisory program, Supervision has
obtained data about certain deposit
account fee practices and is sharing key
data points that shed light on risks to
consumers. To maintain the anonymity
of the supervised institutions discussed
in Supervisory Highlights, references to
institutions generally are in the plural
and related findings may pertain to one
or more institutions.
We invite readers with questions or
comments about Supervisory Highlights
to contact us at CFPB_Supervision@
cfpb.gov.
2. Supervisory Observations
2.1 Deposits
In recent examinations of depository
institutions and service providers,
Supervision has reviewed certain fees
related to deposit accounts to assess
whether supervised entities have
1 Banks’ Overdraft/NSF Fee Revenues Evolve
Along With Their Policies, (July 20, 2023), available
at: https://www.consumerfinance.gov/about-us/
blog/banks-overdraft-nsf-fee-revenues-evolve-alongwith-their-policies/. Some banks have announced
significant changes while others have made smaller
or no changes.
2 Id.
3 If a supervisory matter is referred to the Office
of Enforcement, Enforcement may cite additional
violations based on these facts or uncover
additional information that could impact the
conclusion as to what violations may exist.
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engaged in any unfair, deceptive, or
abusive acts or practices (UDAAPs)
prohibited by the Consumer Financial
Protection Act of 2010 (CFPA).4
Examiners have focused on NSF and
overdraft fees in particular and have
reviewed statement fees and surprise
depositor fees as well. Examiners also
have engaged in follow-up work
regarding pandemic relief benefits.
2.1.1 Assessing Multiple NSF Fees for
the Same Transaction
Supervision continued examinations
of institutions to review for UDAAPs in
connection with charging consumers
NSF fees, especially with respect to ‘‘representments.’’ 5 A re-presentment
occurs when, after declining a
transaction because of insufficient funds
and assessing an NSF fee for the
transaction, the consumer’s accountholding institution returns the
transaction to the merchant’s depository
institution, and the merchant presents
the same transaction to the consumer’s
account-holding institution for payment
again. In some instances, when the
consumer’s account remains insufficient
to pay for the transaction upon representment, the consumer’s accountholding institution again returns the
transaction to the merchant and assesses
another NSF fee for the transaction,
without providing consumers a
reasonable opportunity to prevent
another fee after the first failed
presentment attempt. Absent
restrictions on the assessment of NSF
fees by the consumer’s account-holding
institution, this cycle can occur
multiple times, and consumers may be
charged multiple fees for a single
transaction.
Core Processor Practices
Core processors provide critical
deposit, payment, and data processing
services to many supervised
institutions, and the system
functionality that these entities develop
drives many fee practices, including
NSF fee practices. Supervision has
examined core processors in their
capacity as service providers to covered
persons providing deposit services.
Examiners concluded that, in the
offering and providing of core service
platforms, core processors engaged in an
unfair act or practice by contributing to
the assessment of unfair NSF fees on represented items. An act or practice is
4 12
U.S.C. 5531(c), 5536.
depository institutions charge a NSF fee
when a consumer pays for a transaction with a
check or an ACH transfer and the transaction is
presented for payment, but there is not a sufficient
balance in the consumer’s account to cover the
transaction.
5 Some
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unfair when: (1) it causes or is likely to
cause substantial injury to consumers;
(2) the injury is not reasonably
avoidable by consumers; and (3) the
injury is not outweighed by
countervailing benefits to consumers or
to competition.6 Consumers incurred
substantial injury in the form of the
relevant re-presentment NSF fees.
Consumers were also at increased risk of
incurring additional fees on subsequent
transactions caused by the representment NSF fees, which lowered
consumers’ account balances. Injurious
fees were foreseeable in light of the
system limitations, as the core processor
platforms did not allow financial
institutions to refrain from charging
more than one NSF fee per item without
discontinuing NSF fees altogether or
manually waiving individual fees.
These fees were not reasonably
avoidable by consumers, where
consumers did not have a meaningful
opportunity to prevent another fee after
the first failed representment attempt.
The consumer injury at issue was not
outweighed by countervailing benefits
to consumers or competition.
To address these findings, the core
processors enhanced the systems they
provide to financial institutions to
facilitate their implementation of
policies to eliminate NSF representment fees. Additionally,
Supervision intends to review the
practices of financial institutions
seeking payment from the consumer’s
financial institution, often called
Originating Depository Financial
Institutions, to ensure that represented
transactions are coded properly to
enable systems to identify the relevant
transactions efficiently as well as refrain
from charging NSF fees on those
transactions.
Supervised Institutions’ Practices
In other examinations, Supervision
found that financial institutions engaged
in unfair acts or practices by charging
consumers re-presentment NSF fees
without affording the consumer a
meaningful opportunity to prevent
another fee after the first failed
representment attempt.7 The assessment
of re-presentment NSF fees caused
substantial monetary injury to
consumers, totaling tens of millions of
dollars that will be refunded to
consumers because of examinations
during this time period. These injuries
U.S.C. 5531(c), 5536.
work is consistent with the
CFPB’s public action against Bank of America, N.A.
See CFPB Consent Order 2023–CFPB–0006, In the
Matter of Bank of America, N.A. (July 11, 2023),
available at: https://www.consumerfinance.gov/
enforcement/actions/bank-of-america-n-a-fees/.
were not reasonably avoidable by
consumers, regardless of disclosures in
account-opening documents, because
consumers did not have a reasonable
opportunity to prevent another fee after
the first failed presentment attempt.
And the injuries were not outweighed
by countervailing benefits to consumers
or competition.
Consistent with the CFPB’s longtime
position regarding responsible business
conduct, institutions proactively
developed plans to remediate
consumers for assessed re-presentment
NSF fees.8 However, some financial
institutions used incomplete reports
that only captured certain representment NSF fees charged to
consumers. Examiners found that these
reports captured consumer accounts
that were charged NSF fees on checks
only, or on both checks and ACH
transactions. Yet they omitted consumer
accounts that were assessed NSF fees
solely on ACH transactions. After
examiners identified this issue,
institutions reviewed their remediation
methodologies to ensure coverage of
both ACH and check re-presentments.
In total, institutions are refunding
over $22 million to consumers in
response to Supervision directives since
CFPB initiated this set of work in 2022.
Additionally, the vast majority of
institutions reported plans to stop
charging NSF fees altogether.
2.1.2 Unfair Unanticipated Overdraft
Fees
Supervision continued to cite unfair
acts or practices at institutions that
charged consumers for unfair
unanticipated overdraft fees, such as
Authorize-Positive Settle-Negative
(APSN) overdraft fees, during this time
period. APSN overdraft fees occur when
financial institutions assess overdraft
fees for debit card or ATM transactions
where the consumer had a sufficient
available balance at the time the
consumer authorized the transaction,
but given the delay between
authorization and settlement the
consumer’s account balance is
insufficient at the time of settlement.
This change in balance can occur for
many reasons, such as intervening
authorizations resulting in holds,
settlement of other transactions, timing
of presentment of the transaction for
settlement, and other complex practices
relating to transaction processing order.
Supervision’s recent matters have built
6 12
7 Supervision’s
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8 Responsible Business Conduct: Self-Assessing,
Self-Reporting, Remediating, and Cooperating,
(March 6, 2020), available at: https://
www.consumerfinance.gov/compliance/
supervisory-guidance/bulletin-responsible-businessconduct/.
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on work described in Winter 2023
Supervisory Highlights, and the CFPB
previously discussed this practice in
Consumer Financial Protection Circular
2022–06, Unanticipated Overdraft Fee
Assessment Practices.9
Across its examinations, Supervision
has identified tens of millions of dollars
in injury to thousands of consumers that
occurred whether supervised
institutions used the consumer’s
available or ledger balance for fee
decisioning. Consumers could not
reasonably avoid the substantial injury,
irrespective of account opening
disclosures. The consumer injury was
not outweighed by countervailing
benefits to consumers or competition.
To remedy the violation, these
institutions ceased charging APSN
overdraft fees, and will conduct a
lookback and issue remediation to
injured consumers.
In total, financial institutions are
refunding over $98 million to
consumers since this work began in
2022. In recent examinations, and
consistent with Supervision’s earlier
work, supervised institutions that had
reported to examiners that they engaged
in APSN overdraft fee practices now
report that they will stop doing so.
2.1.3 Supervisory Data Requests on
Overdraft, NSF, and Other OverdraftRelated Fees
As part of the CFPB’s ongoing
supervisory monitoring related to
overdraft practices, Supervision
obtained data from several institutions
related to fees assessed over the course
of 2022, including per item overdraft
and NSF fees, sustained overdraft fees,
and transfer fees (collectively,
‘‘overdraft-related fees’’).10 Supervision
also obtained account-level and
transaction-level data from several
institutions regarding overdraft fees
assessed over a one-month period on
non-recurring debit card and ATM
transactions.11 Some of the key
observations gleaned from the data are
discussed below. Please note that the
9 Supervisory Highlights: Junk Fees Special
Edition, Issue 29, 3–6 (March 2023) available at:
https://www.consumerfinance.gov/data-research/
research-reports/supervisory-highlights-junk-feesspecial-edition-issue-29-winter-2023/; Consumer
Financial Protection Circular 2022–06,
Unanticipated Overdraft Fee Assessment Practices,
at 8–12 (Oct. 26, 2022) available at: https://
www.consumerfinance.gov/compliance/circulars/
consumer-financial-protection-circular-2022-06unanticipated-overdraft-fee-assessment-practices/.
10 See 12 U.S.C. 5515(b)(1).
11 Neither the account-level nor the transactionlevel data contain any directly-identifying personal
information. Because the data used in this analysis
are Confidential Supervisory Information, this
discussion only presents results that are aggregated
and does not identify specific institutions.
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discussion below does not present all of
the CFPB’s observations or data
obtained and that the CFPB’s analysis of
data provided by institutions is ongoing.
Overdraft Coverage and Fee Amounts
per Overdraft Transaction
During the time periods reviewed, the
relevant institutions charged per-item
overdraft fees that ranged from $15 per
item to $36 per item. The amount of
overdraft coverage provided for
consumer transactions on which these
fees were charged often was
disproportionately small. For example,
in these data sets, the median amount of
overdraft coverage extended on onetime debit card and ATM transactions
ranged from $14 to $30. In fact, the
percentage of transactions for which the
amount of overdraft coverage provided
was less than the relevant per-item
overdraft fee ranged from 32% to 74%
across institutions.
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Incident and Distribution of Overdraft,
NSF, and Other Overdraft-Related Fees
Supervision obtained institution-level
data segmented by certain account
characteristics, including: opt-in
status,12 i.e. accounts opted-in to
overdraft services for one-time debit
card and ATM transactions (‘‘opted-in
accounts’’) versus accounts not opted-in
to such overdraft services (‘‘not optedin accounts’’), and average account
balance, i.e. accounts with an average
balance at or less than $500 (‘‘lower
balance accounts’’) versus accounts with
an average balance greater than $500
(‘‘higher balance accounts’’). Across all
institutions monitored, most
accountholders do not incur overdraftrelated fees. This data set also showed
that overdraft-related fees constituted
the majority of the total deposit account
fees that consumers incurred and an
even greater proportion of the total fees
assessed to lower balance accounts and
opted-in accounts.
In 2022, in this data set, overdraft and
NSF fees comprised 53% of all fees that
the institutions charged to consumer
checking accounts and nearly threequarters of all fees charged to lower
balance accounts and opted-in accounts.
Not surprisingly then, while
12 Institutions are prohibited from charging a fee
for paying non-recurring debit card and ATM
transactions into overdraft unless a consumer
affirmatively opts-in to overdraft coverage for these
transactions. See 12 CFR 1005.17(b)(1). Institutions
are not expressly prohibited from charging an NSF
fee on such transactions, however, the Federal
Reserve Board signaled that such fees may violate
the FTC Act. See 74 FR 59033, 59041 (Nov. 17,
2009). This opt-in requirement does not extend to
other transaction types (e.g., ACH and check
transactions) and thus non-opted in accounts may
be assessed overdraft fees for such transactions.
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accountholders overall each paid
approximately $65 per year in overdraft
and NSF fees on average, opted-in
accounts and lower balance
accountholders paid over $165 and $220
in overdraft and NSF fees on average per
year, respectively. A relatively small
fraction of bank customers had a lower
average balance but paid the majority of
overdraft and NSF fees which is
consistent with findings in prior
research conducted by the CFPB.
Indeed, across all institutions in
aggregate, one-fifth of accounts were
lower-balance accounts, but these
accounts paid 68% of per-item overdraft
fees assessed and 77% of the per-item
NSF fees assessed. In fact, for at least
one institution, over half of per-item
overdraft fees assessed and over onethird of per-item NSF fees assessed were
charged to lower balance, opted-in
accounts even though only five percent
of the institution’s accounts fell into this
category.
Data on the frequency of overdraft
transactions and fees showed that the
number of overdraft transactions and
fees varies substantially with opt-in
status. Accounts that overdraft most
frequently (12 or more overdraft fees per
year) were nearly five times as prevalent
among opted-in accounts compared to
not opted-in accounts.
Account Closure and Charge-Offs
Attributable to Overdraft Transactions
and Overdraft-Related Fees
Supervision also obtained data on
account closure attributable to unpaid
negative balances and overdraft
transactions and the amount of chargedoff negative balances attributable to
overdraft transactions (excluding fees).
With respect to account closure,
Supervision found that, across all
institutions, most accounts were closed
involuntarily and half of such accounts
were closed due to an unpaid negative
balance attributable to overdraft
transactions and overdraft-related fees.
In aggregate, losses to institutions in
the form of charge-offs were evenly split
between opted in accounts and not
opted in accounts. Although overdraft
transactions initiated by lower balance
accounts were more likely to be
charged-off, the average amount
charged-off per lower balance account
was roughly equal to the amount
charged-off per higher balance account
and was actually lower at some
institutions. Notably, overdraft-related
fees themselves generally constituted
one-third of the total amount of negative
balances charged-off. In fact, overdraftrelated fees constituted as much as twothirds of the total amount of all
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overdraft charge-offs by at least one
institution.
2.1.4 Unfair Statement Fees
When supervised institutions send
account statements to customers that
provide information about their deposit
accounts during the month, they
generally deliver these statements to
consumers in paper form, through the
U.S. mail, unless consumers elect to
receive the statements in verified and
secure electronic form, whether by
email or through the institution’s
website or its mobile application.
In recent examinations, Supervision
observed that institutions charged fees
for the printing and delivery of paper
statements, including additional fees
when they mailed a statement that was
returned undelivered. Supervision
found that, in certain instances,
institutions did not print or attempt to
deliver paper statements but continued
to assess paper statement fees and
returned mail fees each month.
Supervision found that institutions
engaged in an unfair act or practice by
assessing paper statement fees and
returned mail fees for paper statements
they did not attempt to print and
deliver. Assessing such delivery-related
statement fees for undelivered
statements caused substantial injury to
consumers. Indeed, in one instance, a
senior citizen discovered that her
account was almost entirely depleted
because an account statement had been
returned undelivered five years prior
and the institution had been assessing
statement fees each month since.
Consumers could not reasonably avoid
this injury because they had no reason
to anticipate that such fees would be
assessed. The injury was also not
outweighed by countervailing benefits
to consumers or competition because
assessing delivery-related fees for
undelivered statements provides no
benefit to consumers and does not
actually compensate institutions for any
costs incurred.
In response to these findings, the
institutions stopped assessing paper
statements and returned mail fees for
paper statements they did not attempt to
deliver and will refund the millions of
dollars in such fees that were charged to
hundreds of thousands of consumers.
2.1.5 Surprise Depositor Fees
Surprise depositor fees, also known as
returned deposit item fees, are fees
assessed to consumers when an
institution returns as unprocessed a
check that the consumer attempted to
deposit into his or her checking
account. An institution might return a
check for several reasons, including
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insufficient funds in the originator’s
account, a stop payment order, or
problems with the information on the
check.
In October 2022, the CFPB issued a
compliance bulletin stating that it is
likely an unfair act or practice for an
institution to have a blanket policy of
charging return deposit item fees
anytime that a check is returned unpaid,
irrespective of the circumstances or
patterns of behavior on the account.13
The CFPB stated that these fees cause
substantial monetary injury for each
returned item, which consumers likely
cannot reasonably avoid because they
lack information about and control over
whether a check will clear.14 And it may
be difficult to show that this injury from
blanket return deposit item policies is
outweighed by countervailing benefits
to consumers or to competition.15
In recent examinations, Supervision
has evaluated the returned deposit item
fee practices at a number of institutions.
Most of the examined institutions have
advised the CFPB that they have
eliminated returned deposit item fees
entirely. Others have stated that they are
in the process of doing so. As previewed
in the October 2022 bulletin,
Supervision has not sought to obtain
monetary relief for return deposit item
fees assessed prior to November 1, 2023.
But Supervision will continue to
monitor the relevant practices for
compliance with the law and may direct
remediation from institutions that
continue charging unfair returned
deposit item fees.16
unemployment insurance benefits, as a
result of financial institutions’
garnishment or setoff practices.18
Further follow-up reviews identified
many supervised institutions that risked
committing an unfair act or practice in
violation of the CFPA in connection
with their treatment of pandemic relief
benefits which resulted in consumers
being charged improper fees.19
In response to these findings, the
institutions (1) refunded protected
Economic Impact Payments improperly
taken from consumers to set off fees or
amounts owed to the institution; (2)
refunded garnishment-related fees
assessed to consumers for improper
garnishment of Economic Impact
Payments; and (3) reviewed, updated,
and implemented policies and
procedures to ensure the institution
complies with applicable State and
territorial protections regarding its setoff
and garnishment practices.
To date, Supervision has identified
over $1 million in consumer injury in
response to these examination findings,
with institutions providing redress to
over 6,000 consumers. Thus far,
supervised institutions have provided
redress of approximately $685,000 to
consumers for improper setoff of
Economic Impact Payments and
approximately $315,000 for improper
garnishment-related fees. Most
supervised institutions have reported
making substantial changes to their
policies and procedures to prevent this
type of consumer injury in the future.
2.1.6 Treatment of Pandemic Relief
Benefits
Examiners also reviewed fee practices
in connection with auto loans. Through
this work, Supervision continues to
identify unfair acts or practices related
to auto servicers’ handling of refunds of
add-on products after loans terminate
early. Specifically, some servicers failed
to ensure consumers received refunds,
while others did so but miscalculated
the refund amounts.
When consumers purchase an
automobile, auto dealers and finance
companies offer optional, add-on
products that consumers can purchase.
Auto dealers and finance companies
often charge consumers for the entire
cost of any add-on products at
origination, adding the cost of the addon product as a lump sum to the total
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As described in past editions of
Supervisory Highlights, Supervision
conducted examination work to
evaluate how financial institutions
handled pandemic relief benefits
deposited into consumer accounts.17
Specifically, the CFPB performed a
broad assessment centered on whether
consumers may have lost access to
pandemic relief benefits, namely
Economic Impact Payments and
13 Consumer Financial Protection Bulletin 2022–
06, Unfair Returned Deposited Item Fee Assessment
Practices (Oct. 26, 2022), available at: https://
www.consumerfinance.gov/compliance/
supervisory-guidance/cfpb-bulletin-2022-06-unfairreturned-deposited-item-fee-assessment-practices/.
14 Id. at 3–4.
15 Id. at 5–6.
16 Id. at 3 n.1.
17 Supervisory Highlights, Issue 28 (Fall 2022),
available at: https://www.consumerfinance.gov/
data-research/research-reports/supervisoryhighlights-issue-28-fall-2022/. Supervisory
Highlights, Issue 23 (Winter 2021), available at:
cfpb_supervisory-highlights_issue-23_2021-01.pdf
(consumerfinance.gov).
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2.2
Auto Servicing
18 Supervisory Highlights, Issue 23 (Winter 2021),
available at: https://www.consumerfinance.gov/
data-research/research-reports/supervisoryhighlights-covid-19-prioritized-assessments-specialedition-issue-23/.
19 Supervisory Highlights, Issue 28 (Fall 2022),
available at https://www.consumerfinance.gov/dataresearch/research-reports/supervisory-highlightsissue-28-fall-2022/.
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71537
amount financed. As a result,
consumers typically make payments on
these products throughout the loan
term, even if the product expires earlier.
2.2.1 Overcharging for Add-On
Products After Early Loan Termination
Examiners have continued to review
servicer practices related to add-on
product charges where loans terminated
early through payoff or repossession.20
When loans terminate early, certain
products no longer offer any possible
benefit to consumers; whether a product
offers a benefit depends on the type of
product and reason for early
termination. For example, many vehicle
service contracts continue to provide
possible benefits to consumers after
early payoff but not after repossession,
while a credit product (such as
Guaranteed Asset Protection (GAP) or
credit-life insurance) will not offer any
possible benefits after either early payoff
or repossession.
Examiners found auto servicers
engaged in unfair acts or practices
because consumers suffered substantial
injury when servicers failed to ensure
they received refunds for add-on
products following early loan
termination; consumers were essentially
required to pay for services they could
no longer use, as the relevant products
(including vehicle service contracts,
GAP, or credit-life insurance)
terminated either when the loan
contract was terminated or provided no
possible benefits after the consumer lost
use of the vehicle. Consumers could not
reasonably avoid the injury because
they had no control over the servicers’
refund processing actions. When
servicers present consumers with payoff
amounts, deficiency balances, or
refunds, consumers may have no reason
to know that the amounts include
unearned add-on product costs. And
reasonable consumers might not apply
for refunds themselves because they
may be unaware that the contract
provided that they could do so.
Examiners concluded that the injury
was not outweighed by any
countervailing benefits to consumers or
competition.
In response to these findings,
servicers are remediating impacted
consumers more than $20 million and
20 The CFPB previously discussed similar issues
with add-on product refunds after repossession and
early payoff in Supervisory Highlights, Issue 26,
Spring 2022, available at: https://
www.consumerfinance.gov/data-research/researchreports/supervisory-highlights-issue-26-spring2022/; Consumer Financial Protection Bureau
(consumerfinance.gov) and Supervisory Highlights,
Issue 28, Fall 2023, available at: https://
www.consumerfinance.gov/data-research/researchreports/supervisory-highlights-issue-28-fall-2022/.
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Federal Register / Vol. 88, No. 199 / Tuesday, October 17, 2023 / Notices
implementing processes to ensure
consumers receive refunds for add-on
products that no longer offer any
possible benefit to consumers.
lotter on DSK11XQN23PROD with NOTICES1
2.2.2 Miscalculating Refunds for AddOn Products After Early Loan
Termination
Examiners also have continued to
identify problems with the calculation
of unearned fee amounts after loan
termination.21 Examiners found that
servicers engaged in unfair acts or
practices when they used miscalculated
add-on product refund amounts after
loans terminated early. These servicers
had a policy to obtain add-on product
refunds and relied on service providers
to calculate the refund amounts. The
service providers miscalculated the
refunds due, either because they used
the wrong amount for the price of the
add-on product or because they
deducted fees (such as cancellation fees)
that were not authorized under the addon product contract; the servicers then
used these miscalculated refund
amounts.
Examiners found that servicers
engaged in an unfair act or practice
when they used miscalculated add-on
product refund amounts after loans
terminated early. Using miscalculated
refund amounts caused, or was likely to
cause, substantial injury because
servicers either communicated
inaccurately higher deficiency balances
or provided smaller refunds than
warranted after early loan termination.
Consumers could not reasonably avoid
the injury because they were not
involved in the servicers’ calculation
process, and it is reasonable for
consumers to assume that the
calculations are accurate. And the injury
was not outweighed by countervailing
benefits to consumers or competition.
In response to these findings,
servicers are remediating impacted
consumers and improving monitoring of
service providers.
2.3 Remittances
Examiners also review activities of
remittance transfer providers to ensure
that fees are disclosed and charged
consistent with subpart B of Regulation
E (the Remittance Rule). These
examinations found that certain
providers have violated regulations by
failing to appropriately disclose fees or
failing to refund fees, in certain
circumstances, because of an error.
21 The CFPB previously discussed similar issues
with add-on product refund calculations in
Supervisory Highlights, Issue 18, Winter 2019,
available at: https://www.consumerfinance.gov/
data-research/research-reports/supervisoryhighlights-winter-2019/.
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The Remittance Rule requires that
remittance transfer providers disclose
any transfer fees imposed by the
provider.22 Recent examinations have
found that remittance providers have
failed to disclose fees imposed by their
agents at the time of the transfer, in
violation of 12 CFR 1005.31(b)(1)(ii).
This reduced the total wire amount the
recipients received as compared to the
amount that had been disclosed.
Additionally, in the case of an error for
failure to make funds available to a
designated recipient by the date of
availability, the Remittance Rule states
that if a remittance transfer provider
determines an error occurred, the
provider shall refund to the sender any
fees imposed, and to the extent not
prohibited by law, taxes collected on the
remittance transfer.23 Examiners found
that certain providers failed to correct
errors by refunding to the sender fees
imposed on the remittance transfer,
within the specified time frame, where
the recipients did not receive the
transfers by the promised date, in
violation of 12 CFR 1005.33(c)(2)(ii)(B).
In response to these findings,
supervised institutions implemented
corrective action to prevent future
violations and provided remediation to
consumers charged fees in violation of
regulatory requirements.
3. Consumer Risk-Payment Processing
3.1 Payment Platforms for Student
Meal Accounts
Some kindergarten through 12th grade
school systems contract with companies
that run online platforms that allow
parents or guardians to manage their
students’ meal accounts. In most cases,
families using these online platforms
pay a per-transaction fee to add funds to
their meal accounts. Any school district
that participates in Federal school meal
programs and contracts with fee-based
online platforms must also provide free
options for adding money to student
meal accounts. As a result, families can
avoid the transaction fee by adding
funds using one of these alternative
methods, such as making payments
directly to the school or district.
The CFPB learned of covered persons
that maintained these online payment
platforms where consumers may have
paid fees that they would not have paid
if they had known of the existence of
free options for adding meal funds to
the student’s account. Because
consumers did not know their options,
they incurred transaction fees that they
22 12
CFR 1005.31(b)(1)(ii). As stated in comment
31(b)(1)–1(ii), fees include ‘‘any fees imposed by an
agent of the provider at the time of the transfer.’’
23 12 CFR 1005.33(c)(2)(ii)(B).
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could have avoided. As the fees were
assessed on a per-transaction basis, the
fees likely disproportionately affected
lower-income families that must add
smaller amounts more often, thereby
incurring more transaction fees than
higher-income users that can deposit
larger amounts less frequently.
The CFPB notified the covered
persons that these practices may not
comply with consumer financial
protection laws.
4. Supervisory Program Developments
4.1 Recent CFPB Supervision Program
Developments
Set forth below is a recap of the most
salient supervision program
developments that implicate junk fees.
More information including circulars,
bulletins, and advisory opinions about
the CFPB’s junk fee initiative can be
found at: https://
www.consumerfinance.gov/rules-policy/
junk-fees/.
4.1.1 CFPB Issued a Circular on
Unanticipated Overdraft Fee
Assessment Practices
On October 26, 2022, the CFPB issued
guidance indicating that overdraft fees
may constitute an unfair act or practice
under the CFPA, even if the entity
complies with the Truth in Lending Act
(TILA) and Regulation Z, and the
Electronic Fund Transfer Act (EFTA)
and Regulation E.24 As detailed in the
circular, when supervised institutions
charge surprise overdraft fees,
sometimes as much as $36, they may be
breaking the law. The circular provides
some examples of potentially unlawful
surprise overdraft fees, including
charging fees on purchases made with a
positive balance. These overdraft fees
occur when an institution displays that
a customer has sufficient available
funds to complete a debit card purchase
at the time of the transaction, but the
consumer is later charged an overdraft
fee. Often, the institution relies on
complex back-office practices to justify
charging the fee. For instance, after the
institution allows one debit card
transaction when there is sufficient
money in the account, it nonetheless
charges a fee on that transaction later
because of intervening transactions.
24 Consumer Financial Protection Circular 2022–
06, Unanticipated Overdraft Fee Assessment,
available at: https://files.consumerfinance.gov/f/
documents/cfpb_unanticipated-overdraft-feeassessment-practices_circular_2022-10.pdf.
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4.1.2 CFPB Issued a Bulletin on Unfair
Returned Deposited Item Fee
Assessment Practices
As described above, on October 26,
2022, the CFPB issued a bulletin 25
stating that blanket policies of charging
returned deposited item fees to
consumers for all returned transactions
irrespective of the circumstances or
patterns of behavior on the account are
likely unfair under the CFPA.
4.1.3 CFPB Issued an Advisory
Opinion on Debt Collectors Collection of
Pay To Pay Fees
On June 29, 2022, the CFPB issued an
advisory opinion 26 affirming that
Federal law often prohibits debt
collectors from charging ‘‘pay-to-pay’’
fees. These charges, commonly
described by debt collectors as
‘‘convenience fees,’’ are imposed on
consumers who want to make a
payment in a particular way, such as
online or by phone.
5. Remedial Actions
5.1
USASF Servicing
On August 2, 2023, the CFPB filed a
lawsuit in Federal court against auto
loan servicer USASF Servicing, alleging
USASF engaged in a host of illegal
practices that harmed individuals with
auto loans.27 These alleged practices
include wrongfully disabling borrowers’
vehicles, wrongfully activating late
payment warning tones, improperly
repossessing vehicles, double-billing
borrowers for insurance premiums,
misallocating consumer payments, and
failing to return millions of dollars in
unearned GAP premiums to consumers.
The CFPB is seeking redress for
consumers, civil money penalties, and
to stop any future violations.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2023–22869 Filed 10–16–23; 8:45 am]
lotter on DSK11XQN23PROD with NOTICES1
BILLING CODE 4810–AM–P
25 Bulletin 2022–06: Unfair Returned Deposited
Item Fee Assessment Practices, available at: https://
files.consumerfinance.gov/f/documents/cfpb_
returned-deposited-item-fee-assessment-practice_
compliance-bulletin_2022-10.pdf.
26 Advisory Opinion on Debt Collectors’
Collection of Pay-to-Pay Fees, available at: https://
www.consumerfinance.gov/compliance/advisoryopinion-program/.
27 Consumer Financial Protection Bureau v.
USASF Servicing, LLC. The complaint is available
at: https://www.consumerfinance.gov/about-us/
newsroom/cfpb-sues-usasf-servicing-for-illegallydisabling-vehicles-and-for-improper-double-billingpractices/.
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DEPARTMENT OF EDUCATION
Membership of the Performance
Review Board
Office of Finance and
Operations, Department of Education.
ACTION: Notice.
AGENCY:
The Secretary publishes a list
of persons named to serve on the
Performance Review Board that oversees
the evaluation of performance
appraisals for Senior Executive Service
members of the Department of
Education (Department).
DATES: These appointments are effective
on October 17, 2023.
FOR FURTHER INFORMATION CONTACT:
Jennifer Geldhof, Director, Executive
Resources Division, Office of Human
Resources, Office of Finance and
Operations, U.S. Department of
Education, 400 Maryland Avenue SW,
Room 210–00, LBJ, Washington, DC
20202–4573. Telephone: (202) 580–
9669. Email: Jennifer.Geldhof@ed.gov.
If you use a telecommunications
device for the deaf (TDD), or text
telephone (TTY), call the Federal Relay
Service (FRS), toll free, at 1–800–877–
8339.
SUMMARY:
71539
the document published in the Federal
Register. You may access the official
edition of the Federal Register and the
Code of Federal Regulations at
www.govinfo.gov. At this site you can
view this document, as well as all other
documents of this Department
published in the Federal Register, in
text or Portable Document Format
(PDF). To use PDF you must have
Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the
Department published in the Federal
Register by using the article search
feature at www.federalregister.gov.
Specifically, through the advanced
search feature at this site, you can limit
your search to documents published by
the Department.
Miguel A. Cardona,
Secretary of Education.
[FR Doc. 2023–22825 Filed 10–16–23; 8:45 am]
BILLING CODE 4000–01–P
DEPARTMENT OF EDUCATION
[Docket ID ED–2023–IES–0182]
SUPPLEMENTARY INFORMATION:
Request for Information on Potential
New Program, From Seedlings to Scale
(S2S); Correction
Membership
AGENCY:
Under the Civil Service Reform Act of
1978, Public Law 95–454 (5 U.S.C.
4314(c)(4)), the Department must
publish in the Federal Register a list of
persons named to serve on the
Performance Review Board that oversees
the evaluation of performance
appraisals for Senior Executive Service
members of the Department. The
following persons are named to serve on
the Performance Review Board:
Chapman, Christopher D.
Clay, Jacqueline J.
Eliadis, Pamela D.
Juengst, Phillip R.
Mitchell, Calvin J.
St. Pierre, Tracey
Toney, Lawanda
Alternate:
Burse, Tiwanda M.
Accessible Format: On request to the
program contact person listed under FOR
FURTHER INFORMATION CONTACT,
individuals with disabilities can obtain
this document in an accessible format.
The Department will provide the
requestor with an accessible format that
may include Rich Text Format (RTF) or
text format (txt), a thumb drive, an MP3
file, braille, large print, audiotape, or
compact disc, or other accessible format.
Electronic Access to This Document:
The official version of this document is
PO 00000
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Institute of Education Sciences,
Department of Education.
ACTION: Notice; correction.
On October 12, 2023, the
Department of Education (Department)
published in the Federal Register a
request for information (RFI) on a
potential new program, From Seedlings
to Scale (S2S). We are correcting the
docket identification number. All other
information in the RFI remains the
same.
SUMMARY:
This correction is applicable
October 17, 2023.
FOR FURTHER INFORMATION CONTACT: Erin
Higgins, U.S. Department of Education,
400 Maryland Avenue SW, Washington,
DC 20202. Telephone: (202) 987–1531.
Email: Erin.Higgins@ed.gov.
If you are deaf, hard of hearing, or
have a speech disability and wish to
access telecommunications relay
services, please dial 7–1–1.
SUPPLEMENTARY INFORMATION: On
October 12, 2023, the Department
published a RFI on S2S, a potential new
program. (88 FR 70652). We are
correcting the docket identification
number.
Accessible Format: On request to the
contact person listed under FOR FURTHER
INFORMATION CONTACT, individuals with
disabilities can obtain this document in
DATES:
E:\FR\FM\17OCN1.SGM
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]]>Agencies
- CONSUMER FINANCIAL PROTECTION BUREAU
[Federal Register Volume 88, Number 199 (Tuesday, October 17, 2023)]
[Notices]
[Pages 71534-71539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22869]
=======================================================================
-----------------------------------------------------------------------
CONSUMER FINANCIAL PROTECTION BUREAU
Supervisory Highlights Junk Fees Update Special Edition, Issue
31, Fall 2023
AGENCY: Consumer Financial Protection Bureau.
ACTION: Supervisory Highlights.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its thirty first edition of Supervisory Highlights.
DATES: The findings included in this report cover examinations in the
areas of deposits, auto servicing, and remittances that generally were
completed between February 2023 and August 2023. The report also
describes risks identified in connection with payment platforms that
parents, guardians, and students use to pay for school lunches.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact [email protected].
SUPPLEMENTARY INFORMATION:
1. Introduction
As part of its emphasis on fair competition, the Consumer Financial
Protection Bureau (CFPB) has launched an initiative, consistent with
its legal authority, to scrutinize junk fees charged by banks and
financial companies. Junk fees are typically not subjected to the
normal forces of competition, leading to excessive costs for services
that a consumer may not even want. For example, certain banks and
financial companies might hide these unavoidable or surprise charges or
disclose them only at a later stage in the consumer's purchasing
process, if at all.
The CFPB has observed that supervised institutions have started to
compete more when it comes to fees. In recent years, multiple banks
have announced they were eliminating overdraft fees or otherwise
updating their policies to be more consumer friendly.\1\ And many have
announced that they are eliminating non-sufficient fund (NSF) fees on
consumer deposit accounts.\2\
---------------------------------------------------------------------------
\1\ Banks' Overdraft/NSF Fee Revenues Evolve Along With Their
Policies, (July 20, 2023), available at: https://www.consumerfinance.gov/about-us/blog/banks-overdraft-nsf-fee-revenues-evolve-along-with-their-policies/. Some banks have
announced significant changes while others have made smaller or no
changes.
\2\ Id.
---------------------------------------------------------------------------
Supervision continues to focus significant resources on identifying
and eliminating junk fees charged by supervised institutions.
Significantly, financial institutions are refunding over $120 million
to consumers for unanticipated overdraft fees and unfair NSF fees. This
special edition of Supervisory Highlights updates the public on
supervisory work completed since the CFPB published the March 2023
Supervisory Highlights Junk Fees Special Edition. In total, for the
topics covered in this edition, Supervision's work has resulted in
institutions refunding over $140 million to consumers.
The findings included in this report cover examinations in the
areas of deposits, auto servicing, and remittances that generally were
completed between February 2023 and August 2023.\3\ The report also
describes risks identified in connection with payment platforms that
parents, guardians, and students use to pay for school lunches.
Additionally, consistent with the statutory requirement for Supervision
to identify and consider ``risks to consumers'' throughout its
supervisory program, Supervision has obtained data about certain
deposit account fee practices and is sharing key data points that shed
light on risks to consumers. To maintain the anonymity of the
supervised institutions discussed in Supervisory Highlights, references
to institutions generally are in the plural and related findings may
pertain to one or more institutions.
---------------------------------------------------------------------------
\3\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
---------------------------------------------------------------------------
We invite readers with questions or comments about Supervisory
Highlights to contact us at [email protected].
2. Supervisory Observations
2.1 Deposits
In recent examinations of depository institutions and service
providers, Supervision has reviewed certain fees related to deposit
accounts to assess whether supervised entities have engaged in any
unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by
the Consumer Financial Protection Act of 2010 (CFPA).\4\ Examiners have
focused on NSF and overdraft fees in particular and have reviewed
statement fees and surprise depositor fees as well. Examiners also have
engaged in follow-up work regarding pandemic relief benefits.
---------------------------------------------------------------------------
\4\ 12 U.S.C. 5531(c), 5536.
---------------------------------------------------------------------------
2.1.1 Assessing Multiple NSF Fees for the Same Transaction
Supervision continued examinations of institutions to review for
UDAAPs in connection with charging consumers NSF fees, especially with
respect to ``re-presentments.'' \5\ A re-presentment occurs when, after
declining a transaction because of insufficient funds and assessing an
NSF fee for the transaction, the consumer's account-holding institution
returns the transaction to the merchant's depository institution, and
the merchant presents the same transaction to the consumer's account-
holding institution for payment again. In some instances, when the
consumer's account remains insufficient to pay for the transaction upon
re-presentment, the consumer's account-holding institution again
returns the transaction to the merchant and assesses another NSF fee
for the transaction, without providing consumers a reasonable
opportunity to prevent another fee after the first failed presentment
attempt. Absent restrictions on the assessment of NSF fees by the
consumer's account-holding institution, this cycle can occur multiple
times, and consumers may be charged multiple fees for a single
transaction.
---------------------------------------------------------------------------
\5\ Some depository institutions charge a NSF fee when a
consumer pays for a transaction with a check or an ACH transfer and
the transaction is presented for payment, but there is not a
sufficient balance in the consumer's account to cover the
transaction.
---------------------------------------------------------------------------
Core Processor Practices
Core processors provide critical deposit, payment, and data
processing services to many supervised institutions, and the system
functionality that these entities develop drives many fee practices,
including NSF fee practices. Supervision has examined core processors
in their capacity as service providers to covered persons providing
deposit services.
Examiners concluded that, in the offering and providing of core
service platforms, core processors engaged in an unfair act or practice
by contributing to the assessment of unfair NSF fees on re-presented
items. An act or practice is
[[Page 71535]]
unfair when: (1) it causes or is likely to cause substantial injury to
consumers; (2) the injury is not reasonably avoidable by consumers; and
(3) the injury is not outweighed by countervailing benefits to
consumers or to competition.\6\ Consumers incurred substantial injury
in the form of the relevant re-presentment NSF fees. Consumers were
also at increased risk of incurring additional fees on subsequent
transactions caused by the re-presentment NSF fees, which lowered
consumers' account balances. Injurious fees were foreseeable in light
of the system limitations, as the core processor platforms did not
allow financial institutions to refrain from charging more than one NSF
fee per item without discontinuing NSF fees altogether or manually
waiving individual fees. These fees were not reasonably avoidable by
consumers, where consumers did not have a meaningful opportunity to
prevent another fee after the first failed representment attempt. The
consumer injury at issue was not outweighed by countervailing benefits
to consumers or competition.
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5531(c), 5536.
---------------------------------------------------------------------------
To address these findings, the core processors enhanced the systems
they provide to financial institutions to facilitate their
implementation of policies to eliminate NSF re-presentment fees.
Additionally, Supervision intends to review the practices of financial
institutions seeking payment from the consumer's financial institution,
often called Originating Depository Financial Institutions, to ensure
that represented transactions are coded properly to enable systems to
identify the relevant transactions efficiently as well as refrain from
charging NSF fees on those transactions.
Supervised Institutions' Practices
In other examinations, Supervision found that financial
institutions engaged in unfair acts or practices by charging consumers
re-presentment NSF fees without affording the consumer a meaningful
opportunity to prevent another fee after the first failed representment
attempt.\7\ The assessment of re-presentment NSF fees caused
substantial monetary injury to consumers, totaling tens of millions of
dollars that will be refunded to consumers because of examinations
during this time period. These injuries were not reasonably avoidable
by consumers, regardless of disclosures in account-opening documents,
because consumers did not have a reasonable opportunity to prevent
another fee after the first failed presentment attempt. And the
injuries were not outweighed by countervailing benefits to consumers or
competition.
---------------------------------------------------------------------------
\7\ Supervision's work is consistent with the CFPB's public
action against Bank of America, N.A. See CFPB Consent Order 2023-
CFPB-0006, In the Matter of Bank of America, N.A. (July 11, 2023),
available at: https://www.consumerfinance.gov/enforcement/actions/bank-of-america-n-a-fees/.
---------------------------------------------------------------------------
Consistent with the CFPB's longtime position regarding responsible
business conduct, institutions proactively developed plans to remediate
consumers for assessed re-presentment NSF fees.\8\ However, some
financial institutions used incomplete reports that only captured
certain re-presentment NSF fees charged to consumers. Examiners found
that these reports captured consumer accounts that were charged NSF
fees on checks only, or on both checks and ACH transactions. Yet they
omitted consumer accounts that were assessed NSF fees solely on ACH
transactions. After examiners identified this issue, institutions
reviewed their remediation methodologies to ensure coverage of both ACH
and check re-presentments.
---------------------------------------------------------------------------
\8\ Responsible Business Conduct: Self-Assessing, Self-
Reporting, Remediating, and Cooperating, (March 6, 2020), available
at: https://www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-responsible-business-conduct/.
---------------------------------------------------------------------------
In total, institutions are refunding over $22 million to consumers
in response to Supervision directives since CFPB initiated this set of
work in 2022. Additionally, the vast majority of institutions reported
plans to stop charging NSF fees altogether.
2.1.2 Unfair Unanticipated Overdraft Fees
Supervision continued to cite unfair acts or practices at
institutions that charged consumers for unfair unanticipated overdraft
fees, such as Authorize-Positive Settle-Negative (APSN) overdraft fees,
during this time period. APSN overdraft fees occur when financial
institutions assess overdraft fees for debit card or ATM transactions
where the consumer had a sufficient available balance at the time the
consumer authorized the transaction, but given the delay between
authorization and settlement the consumer's account balance is
insufficient at the time of settlement. This change in balance can
occur for many reasons, such as intervening authorizations resulting in
holds, settlement of other transactions, timing of presentment of the
transaction for settlement, and other complex practices relating to
transaction processing order. Supervision's recent matters have built
on work described in Winter 2023 Supervisory Highlights, and the CFPB
previously discussed this practice in Consumer Financial Protection
Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices.\9\
---------------------------------------------------------------------------
\9\ Supervisory Highlights: Junk Fees Special Edition, Issue 29,
3-6 (March 2023) available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-junk-fees-special-edition-issue-29-winter-2023/; Consumer Financial Protection
Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices,
at 8-12 (Oct. 26, 2022) available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/.
---------------------------------------------------------------------------
Across its examinations, Supervision has identified tens of
millions of dollars in injury to thousands of consumers that occurred
whether supervised institutions used the consumer's available or ledger
balance for fee decisioning. Consumers could not reasonably avoid the
substantial injury, irrespective of account opening disclosures. The
consumer injury was not outweighed by countervailing benefits to
consumers or competition. To remedy the violation, these institutions
ceased charging APSN overdraft fees, and will conduct a lookback and
issue remediation to injured consumers.
In total, financial institutions are refunding over $98 million to
consumers since this work began in 2022. In recent examinations, and
consistent with Supervision's earlier work, supervised institutions
that had reported to examiners that they engaged in APSN overdraft fee
practices now report that they will stop doing so.
2.1.3 Supervisory Data Requests on Overdraft, NSF, and Other Overdraft-
Related Fees
As part of the CFPB's ongoing supervisory monitoring related to
overdraft practices, Supervision obtained data from several
institutions related to fees assessed over the course of 2022,
including per item overdraft and NSF fees, sustained overdraft fees,
and transfer fees (collectively, ``overdraft-related fees'').\10\
Supervision also obtained account-level and transaction-level data from
several institutions regarding overdraft fees assessed over a one-month
period on non-recurring debit card and ATM transactions.\11\ Some of
the key observations gleaned from the data are discussed below. Please
note that the
[[Page 71536]]
discussion below does not present all of the CFPB's observations or
data obtained and that the CFPB's analysis of data provided by
institutions is ongoing.
---------------------------------------------------------------------------
\10\ See 12 U.S.C. 5515(b)(1).
\11\ Neither the account-level nor the transaction-level data
contain any directly-identifying personal information. Because the
data used in this analysis are Confidential Supervisory Information,
this discussion only presents results that are aggregated and does
not identify specific institutions.
---------------------------------------------------------------------------
Overdraft Coverage and Fee Amounts per Overdraft Transaction
During the time periods reviewed, the relevant institutions charged
per-item overdraft fees that ranged from $15 per item to $36 per item.
The amount of overdraft coverage provided for consumer transactions on
which these fees were charged often was disproportionately small. For
example, in these data sets, the median amount of overdraft coverage
extended on one-time debit card and ATM transactions ranged from $14 to
$30. In fact, the percentage of transactions for which the amount of
overdraft coverage provided was less than the relevant per-item
overdraft fee ranged from 32% to 74% across institutions.
Incident and Distribution of Overdraft, NSF, and Other Overdraft-
Related Fees
Supervision obtained institution-level data segmented by certain
account characteristics, including: opt-in status,\12\ i.e. accounts
opted-in to overdraft services for one-time debit card and ATM
transactions (``opted-in accounts'') versus accounts not opted-in to
such overdraft services (``not opted-in accounts''), and average
account balance, i.e. accounts with an average balance at or less than
$500 (``lower balance accounts'') versus accounts with an average
balance greater than $500 (``higher balance accounts''). Across all
institutions monitored, most accountholders do not incur overdraft-
related fees. This data set also showed that overdraft-related fees
constituted the majority of the total deposit account fees that
consumers incurred and an even greater proportion of the total fees
assessed to lower balance accounts and opted-in accounts.
---------------------------------------------------------------------------
\12\ Institutions are prohibited from charging a fee for paying
non-recurring debit card and ATM transactions into overdraft unless
a consumer affirmatively opts-in to overdraft coverage for these
transactions. See 12 CFR 1005.17(b)(1). Institutions are not
expressly prohibited from charging an NSF fee on such transactions,
however, the Federal Reserve Board signaled that such fees may
violate the FTC Act. See 74 FR 59033, 59041 (Nov. 17, 2009). This
opt-in requirement does not extend to other transaction types (e.g.,
ACH and check transactions) and thus non-opted in accounts may be
assessed overdraft fees for such transactions.
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In 2022, in this data set, overdraft and NSF fees comprised 53% of
all fees that the institutions charged to consumer checking accounts
and nearly three-quarters of all fees charged to lower balance accounts
and opted-in accounts. Not surprisingly then, while accountholders
overall each paid approximately $65 per year in overdraft and NSF fees
on average, opted-in accounts and lower balance accountholders paid
over $165 and $220 in overdraft and NSF fees on average per year,
respectively. A relatively small fraction of bank customers had a lower
average balance but paid the majority of overdraft and NSF fees which
is consistent with findings in prior research conducted by the CFPB.
Indeed, across all institutions in aggregate, one-fifth of accounts
were lower-balance accounts, but these accounts paid 68% of per-item
overdraft fees assessed and 77% of the per-item NSF fees assessed. In
fact, for at least one institution, over half of per-item overdraft
fees assessed and over one-third of per-item NSF fees assessed were
charged to lower balance, opted-in accounts even though only five
percent of the institution's accounts fell into this category.
Data on the frequency of overdraft transactions and fees showed
that the number of overdraft transactions and fees varies substantially
with opt-in status. Accounts that overdraft most frequently (12 or more
overdraft fees per year) were nearly five times as prevalent among
opted-in accounts compared to not opted-in accounts.
Account Closure and Charge-Offs Attributable to Overdraft Transactions
and Overdraft-Related Fees
Supervision also obtained data on account closure attributable to
unpaid negative balances and overdraft transactions and the amount of
charged-off negative balances attributable to overdraft transactions
(excluding fees). With respect to account closure, Supervision found
that, across all institutions, most accounts were closed involuntarily
and half of such accounts were closed due to an unpaid negative balance
attributable to overdraft transactions and overdraft-related fees.
In aggregate, losses to institutions in the form of charge-offs
were evenly split between opted in accounts and not opted in accounts.
Although overdraft transactions initiated by lower balance accounts
were more likely to be charged-off, the average amount charged-off per
lower balance account was roughly equal to the amount charged-off per
higher balance account and was actually lower at some institutions.
Notably, overdraft-related fees themselves generally constituted one-
third of the total amount of negative balances charged-off. In fact,
overdraft-related fees constituted as much as two-thirds of the total
amount of all overdraft charge-offs by at least one institution.
2.1.4 Unfair Statement Fees
When supervised institutions send account statements to customers
that provide information about their deposit accounts during the month,
they generally deliver these statements to consumers in paper form,
through the U.S. mail, unless consumers elect to receive the statements
in verified and secure electronic form, whether by email or through the
institution's website or its mobile application.
In recent examinations, Supervision observed that institutions
charged fees for the printing and delivery of paper statements,
including additional fees when they mailed a statement that was
returned undelivered. Supervision found that, in certain instances,
institutions did not print or attempt to deliver paper statements but
continued to assess paper statement fees and returned mail fees each
month.
Supervision found that institutions engaged in an unfair act or
practice by assessing paper statement fees and returned mail fees for
paper statements they did not attempt to print and deliver. Assessing
such delivery-related statement fees for undelivered statements caused
substantial injury to consumers. Indeed, in one instance, a senior
citizen discovered that her account was almost entirely depleted
because an account statement had been returned undelivered five years
prior and the institution had been assessing statement fees each month
since. Consumers could not reasonably avoid this injury because they
had no reason to anticipate that such fees would be assessed. The
injury was also not outweighed by countervailing benefits to consumers
or competition because assessing delivery-related fees for undelivered
statements provides no benefit to consumers and does not actually
compensate institutions for any costs incurred.
In response to these findings, the institutions stopped assessing
paper statements and returned mail fees for paper statements they did
not attempt to deliver and will refund the millions of dollars in such
fees that were charged to hundreds of thousands of consumers.
2.1.5 Surprise Depositor Fees
Surprise depositor fees, also known as returned deposit item fees,
are fees assessed to consumers when an institution returns as
unprocessed a check that the consumer attempted to deposit into his or
her checking account. An institution might return a check for several
reasons, including
[[Page 71537]]
insufficient funds in the originator's account, a stop payment order,
or problems with the information on the check.
In October 2022, the CFPB issued a compliance bulletin stating that
it is likely an unfair act or practice for an institution to have a
blanket policy of charging return deposit item fees anytime that a
check is returned unpaid, irrespective of the circumstances or patterns
of behavior on the account.\13\ The CFPB stated that these fees cause
substantial monetary injury for each returned item, which consumers
likely cannot reasonably avoid because they lack information about and
control over whether a check will clear.\14\ And it may be difficult to
show that this injury from blanket return deposit item policies is
outweighed by countervailing benefits to consumers or to
competition.\15\
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\13\ Consumer Financial Protection Bulletin 2022-06, Unfair
Returned Deposited Item Fee Assessment Practices (Oct. 26, 2022),
available at: https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-06-unfair-returned-deposited-item-fee-assessment-practices/.
\14\ Id. at 3-4.
\15\ Id. at 5-6.
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In recent examinations, Supervision has evaluated the returned
deposit item fee practices at a number of institutions. Most of the
examined institutions have advised the CFPB that they have eliminated
returned deposit item fees entirely. Others have stated that they are
in the process of doing so. As previewed in the October 2022 bulletin,
Supervision has not sought to obtain monetary relief for return deposit
item fees assessed prior to November 1, 2023. But Supervision will
continue to monitor the relevant practices for compliance with the law
and may direct remediation from institutions that continue charging
unfair returned deposit item fees.\16\
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\16\ Id. at 3 n.1.
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2.1.6 Treatment of Pandemic Relief Benefits
As described in past editions of Supervisory Highlights,
Supervision conducted examination work to evaluate how financial
institutions handled pandemic relief benefits deposited into consumer
accounts.\17\ Specifically, the CFPB performed a broad assessment
centered on whether consumers may have lost access to pandemic relief
benefits, namely Economic Impact Payments and unemployment insurance
benefits, as a result of financial institutions' garnishment or setoff
practices.\18\ Further follow-up reviews identified many supervised
institutions that risked committing an unfair act or practice in
violation of the CFPA in connection with their treatment of pandemic
relief benefits which resulted in consumers being charged improper
fees.\19\
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\17\ Supervisory Highlights, Issue 28 (Fall 2022), available at:
https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/. Supervisory Highlights,
Issue 23 (Winter 2021), available at: cfpb_supervisory-
highlights_issue-23_2021-01.pdf (consumerfinance.gov).
\18\ Supervisory Highlights, Issue 23 (Winter 2021), available
at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-covid-19-prioritized-assessments-special-edition-issue-23/.
\19\ Supervisory Highlights, Issue 28 (Fall 2022), available at
https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/.
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In response to these findings, the institutions (1) refunded
protected Economic Impact Payments improperly taken from consumers to
set off fees or amounts owed to the institution; (2) refunded
garnishment-related fees assessed to consumers for improper garnishment
of Economic Impact Payments; and (3) reviewed, updated, and implemented
policies and procedures to ensure the institution complies with
applicable State and territorial protections regarding its setoff and
garnishment practices.
To date, Supervision has identified over $1 million in consumer
injury in response to these examination findings, with institutions
providing redress to over 6,000 consumers. Thus far, supervised
institutions have provided redress of approximately $685,000 to
consumers for improper setoff of Economic Impact Payments and
approximately $315,000 for improper garnishment-related fees. Most
supervised institutions have reported making substantial changes to
their policies and procedures to prevent this type of consumer injury
in the future.
2.2 Auto Servicing
Examiners also reviewed fee practices in connection with auto
loans. Through this work, Supervision continues to identify unfair acts
or practices related to auto servicers' handling of refunds of add-on
products after loans terminate early. Specifically, some servicers
failed to ensure consumers received refunds, while others did so but
miscalculated the refund amounts.
When consumers purchase an automobile, auto dealers and finance
companies offer optional, add-on products that consumers can purchase.
Auto dealers and finance companies often charge consumers for the
entire cost of any add-on products at origination, adding the cost of
the add-on product as a lump sum to the total amount financed. As a
result, consumers typically make payments on these products throughout
the loan term, even if the product expires earlier.
2.2.1 Overcharging for Add-On Products After Early Loan Termination
Examiners have continued to review servicer practices related to
add-on product charges where loans terminated early through payoff or
repossession.\20\ When loans terminate early, certain products no
longer offer any possible benefit to consumers; whether a product
offers a benefit depends on the type of product and reason for early
termination. For example, many vehicle service contracts continue to
provide possible benefits to consumers after early payoff but not after
repossession, while a credit product (such as Guaranteed Asset
Protection (GAP) or credit-life insurance) will not offer any possible
benefits after either early payoff or repossession.
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\20\ The CFPB previously discussed similar issues with add-on
product refunds after repossession and early payoff in Supervisory
Highlights, Issue 26, Spring 2022, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-26-spring-2022/; Consumer Financial Protection
Bureau (consumerfinance.gov) and Supervisory Highlights, Issue 28,
Fall 2023, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/.
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Examiners found auto servicers engaged in unfair acts or practices
because consumers suffered substantial injury when servicers failed to
ensure they received refunds for add-on products following early loan
termination; consumers were essentially required to pay for services
they could no longer use, as the relevant products (including vehicle
service contracts, GAP, or credit-life insurance) terminated either
when the loan contract was terminated or provided no possible benefits
after the consumer lost use of the vehicle. Consumers could not
reasonably avoid the injury because they had no control over the
servicers' refund processing actions. When servicers present consumers
with payoff amounts, deficiency balances, or refunds, consumers may
have no reason to know that the amounts include unearned add-on product
costs. And reasonable consumers might not apply for refunds themselves
because they may be unaware that the contract provided that they could
do so. Examiners concluded that the injury was not outweighed by any
countervailing benefits to consumers or competition.
In response to these findings, servicers are remediating impacted
consumers more than $20 million and
[[Page 71538]]
implementing processes to ensure consumers receive refunds for add-on
products that no longer offer any possible benefit to consumers.
2.2.2 Miscalculating Refunds for Add-On Products After Early Loan
Termination
Examiners also have continued to identify problems with the
calculation of unearned fee amounts after loan termination.\21\
Examiners found that servicers engaged in unfair acts or practices when
they used miscalculated add-on product refund amounts after loans
terminated early. These servicers had a policy to obtain add-on product
refunds and relied on service providers to calculate the refund
amounts. The service providers miscalculated the refunds due, either
because they used the wrong amount for the price of the add-on product
or because they deducted fees (such as cancellation fees) that were not
authorized under the add-on product contract; the servicers then used
these miscalculated refund amounts.
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\21\ The CFPB previously discussed similar issues with add-on
product refund calculations in Supervisory Highlights, Issue 18,
Winter 2019, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-winter-2019/.
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Examiners found that servicers engaged in an unfair act or practice
when they used miscalculated add-on product refund amounts after loans
terminated early. Using miscalculated refund amounts caused, or was
likely to cause, substantial injury because servicers either
communicated inaccurately higher deficiency balances or provided
smaller refunds than warranted after early loan termination. Consumers
could not reasonably avoid the injury because they were not involved in
the servicers' calculation process, and it is reasonable for consumers
to assume that the calculations are accurate. And the injury was not
outweighed by countervailing benefits to consumers or competition.
In response to these findings, servicers are remediating impacted
consumers and improving monitoring of service providers.
2.3 Remittances
Examiners also review activities of remittance transfer providers
to ensure that fees are disclosed and charged consistent with subpart B
of Regulation E (the Remittance Rule). These examinations found that
certain providers have violated regulations by failing to appropriately
disclose fees or failing to refund fees, in certain circumstances,
because of an error.
The Remittance Rule requires that remittance transfer providers
disclose any transfer fees imposed by the provider.\22\ Recent
examinations have found that remittance providers have failed to
disclose fees imposed by their agents at the time of the transfer, in
violation of 12 CFR 1005.31(b)(1)(ii). This reduced the total wire
amount the recipients received as compared to the amount that had been
disclosed. Additionally, in the case of an error for failure to make
funds available to a designated recipient by the date of availability,
the Remittance Rule states that if a remittance transfer provider
determines an error occurred, the provider shall refund to the sender
any fees imposed, and to the extent not prohibited by law, taxes
collected on the remittance transfer.\23\ Examiners found that certain
providers failed to correct errors by refunding to the sender fees
imposed on the remittance transfer, within the specified time frame,
where the recipients did not receive the transfers by the promised
date, in violation of 12 CFR 1005.33(c)(2)(ii)(B). In response to these
findings, supervised institutions implemented corrective action to
prevent future violations and provided remediation to consumers charged
fees in violation of regulatory requirements.
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\22\ 12 CFR 1005.31(b)(1)(ii). As stated in comment 31(b)(1)-
1(ii), fees include ``any fees imposed by an agent of the provider
at the time of the transfer.''
\23\ 12 CFR 1005.33(c)(2)(ii)(B).
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3. Consumer Risk-Payment Processing
3.1 Payment Platforms for Student Meal Accounts
Some kindergarten through 12th grade school systems contract with
companies that run online platforms that allow parents or guardians to
manage their students' meal accounts. In most cases, families using
these online platforms pay a per-transaction fee to add funds to their
meal accounts. Any school district that participates in Federal school
meal programs and contracts with fee-based online platforms must also
provide free options for adding money to student meal accounts. As a
result, families can avoid the transaction fee by adding funds using
one of these alternative methods, such as making payments directly to
the school or district.
The CFPB learned of covered persons that maintained these online
payment platforms where consumers may have paid fees that they would
not have paid if they had known of the existence of free options for
adding meal funds to the student's account. Because consumers did not
know their options, they incurred transaction fees that they could have
avoided. As the fees were assessed on a per-transaction basis, the fees
likely disproportionately affected lower-income families that must add
smaller amounts more often, thereby incurring more transaction fees
than higher-income users that can deposit larger amounts less
frequently.
The CFPB notified the covered persons that these practices may not
comply with consumer financial protection laws.
4. Supervisory Program Developments
4.1 Recent CFPB Supervision Program Developments
Set forth below is a recap of the most salient supervision program
developments that implicate junk fees. More information including
circulars, bulletins, and advisory opinions about the CFPB's junk fee
initiative can be found at: https://www.consumerfinance.gov/rules-policy/junk-fees/.
4.1.1 CFPB Issued a Circular on Unanticipated Overdraft Fee Assessment
Practices
On October 26, 2022, the CFPB issued guidance indicating that
overdraft fees may constitute an unfair act or practice under the CFPA,
even if the entity complies with the Truth in Lending Act (TILA) and
Regulation Z, and the Electronic Fund Transfer Act (EFTA) and
Regulation E.\24\ As detailed in the circular, when supervised
institutions charge surprise overdraft fees, sometimes as much as $36,
they may be breaking the law. The circular provides some examples of
potentially unlawful surprise overdraft fees, including charging fees
on purchases made with a positive balance. These overdraft fees occur
when an institution displays that a customer has sufficient available
funds to complete a debit card purchase at the time of the transaction,
but the consumer is later charged an overdraft fee. Often, the
institution relies on complex back-office practices to justify charging
the fee. For instance, after the institution allows one debit card
transaction when there is sufficient money in the account, it
nonetheless charges a fee on that transaction later because of
intervening transactions.
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\24\ Consumer Financial Protection Circular 2022-06,
Unanticipated Overdraft Fee Assessment, available at: https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.
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[[Page 71539]]
4.1.2 CFPB Issued a Bulletin on Unfair Returned Deposited Item Fee
Assessment Practices
As described above, on October 26, 2022, the CFPB issued a bulletin
\25\ stating that blanket policies of charging returned deposited item
fees to consumers for all returned transactions irrespective of the
circumstances or patterns of behavior on the account are likely unfair
under the CFPA.
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\25\ Bulletin 2022-06: Unfair Returned Deposited Item Fee
Assessment Practices, available at: https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf.
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4.1.3 CFPB Issued an Advisory Opinion on Debt Collectors Collection of
Pay To Pay Fees
On June 29, 2022, the CFPB issued an advisory opinion \26\
affirming that Federal law often prohibits debt collectors from
charging ``pay-to-pay'' fees. These charges, commonly described by debt
collectors as ``convenience fees,'' are imposed on consumers who want
to make a payment in a particular way, such as online or by phone.
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\26\ Advisory Opinion on Debt Collectors' Collection of Pay-to-
Pay Fees, available at: https://www.consumerfinance.gov/compliance/advisory-opinion-program/.
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5. Remedial Actions
5.1 USASF Servicing
On August 2, 2023, the CFPB filed a lawsuit in Federal court
against auto loan servicer USASF Servicing, alleging USASF engaged in a
host of illegal practices that harmed individuals with auto loans.\27\
These alleged practices include wrongfully disabling borrowers'
vehicles, wrongfully activating late payment warning tones, improperly
repossessing vehicles, double-billing borrowers for insurance premiums,
misallocating consumer payments, and failing to return millions of
dollars in unearned GAP premiums to consumers. The CFPB is seeking
redress for consumers, civil money penalties, and to stop any future
violations.
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\27\ Consumer Financial Protection Bureau v. USASF Servicing,
LLC. The complaint is available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-usasf-servicing-for-illegally-disabling-vehicles-and-for-improper-double-billing-practices/.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-22869 Filed 10-16-23; 8:45 am]
BILLING CODE 4810-AM-P
