Consumer Financial Protection Circular 2024-05: Improper Overdraft Opt-In Practices, 80075-80077 [2024-22551]

Agencies

• CONSUMER FINANCIAL PROTECTION BUREAU

[Federal Register Volume 89, Number 191 (Wednesday, October 2, 2024)]
[Rules and Regulations]
[Pages 80075-80077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22551]


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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Chapter X


Consumer Financial Protection Circular 2024-05: Improper 
Overdraft Opt-In Practices

AGENCY: Consumer Financial Protection Bureau.

ACTION: Consumer financial protection circular.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) has issued 
Consumer Financial Protection Circular 2024-05, titled ``Improper 
Overdraft Opt-In Practices.'' In this circular, the CFPB responds to 
the question, ``Can a financial institution violate the law if there is 
no proof that it has obtained consumers' affirmative consent before 
levying overdraft fees for ATM and one-time debit card transactions?''

DATES: The CFPB released this circular on its website on September 17, 
2024.

ADDRESSES: Enforcers, and the broader public, can provide feedback and 
comments to [email protected].

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

Question Presented

    Can a financial institution violate the law if there is no proof 
that it has obtained consumers' affirmative consent before levying 
overdraft fees for ATM and one-time debit card transactions?

Response

    Yes. A bank or credit union can be in violation of the Electronic 
Fund Transfer Act (EFTA) and Regulation E if there is no proof that it 
obtained affirmative consent to enrollment in covered overdraft 
services. The form of the records that demonstrate consumer consent to 
enrollment may vary according to the channel through which the consumer 
opts into covered overdraft services.

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    Regulation E's overdraft provisions establish an opt-in regime, not 
an opt-out regime, where the default condition is that consumers are 
not enrolled in covered overdraft services. Financial institutions are 
prohibited from charging fees for such services until consumers 
affirmatively consent to enrollment. Violations of 12 CFR 1005.17(b)(1) 
can be proven in part by showing evidence that a consumer was charged 
an overdraft fee on a covered transaction where the available evidence 
does not adequately validate that the consumer opted in.\1\
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    \1\ Depending on the circumstances, a financial institution's 
overdraft practices may also implicate the CFPA's prohibition on 
unfair, deceptive, or abusive acts or practices. 12 U.S.C. 5531, 
5536. See, e.g., Consumer Financial Protection Circular 2022-06, 
Unanticipated Overdraft Fee Assessment Practices (Oct. 26, 2022).
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Regulatory Background

    Regulation E implements the EFTA and governs the assessment of 
certain overdraft fees. Specifically, before a financial institution 
may charge a consumer a fee in connection with an ATM or one-time debit 
transaction, Regulation E requires the financial institution to provide 
consumers with a ``reasonable opportunity for the consumer to 
affirmatively consent, or opt in'' to covered overdraft services, and 
to obtain the consumer's ``affirmative consent, or opt in'' to such 
services.\2\ Institutions are also required to provide consumers with a 
written or electronic notice describing the institution's overdraft 
services prior to opt in, and to provide consumers with confirmation of 
the consumer's consent to enrollment in writing or electronically with 
a notice informing the consumer of the right to revoke such consent.\3\ 
These rules do not apply to overdraft fees charged on written checks, 
recurring debit transactions, or ACH transactions.
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    \2\ 12 CFR 1005.17(b)(1)(ii) & (iii).
    \3\ 12 CFR 1005.17(b)(1)(i) & (iv). 12 CFR 1005.13(b)(1) 
requires a person to retain evidence of compliance with the 
requirements of EFTA and Regulation E for a period of not less than 
two years from the date disclosures are required to be made or 
action is required to be taken. This is an independent legal 
obligation, which does not change the fact that the absence of 
records proving that an opt-in occurred is suggestive that a 
consumer did not opt in.
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Analysis

    As noted above, Regulation E sets forth an opt-in, rather than opt-
out, process before financial institutions are permitted to assess fees 
for covered overdraft services. The opt-in provisions provide that, 
absent affirmative enrollment by consumers, consumers' default status 
is to not be enrolled in covered overdraft services. Regulation E's 
opt-in provisions were established after the Federal Reserve Board 
found that consumers who were automatically enrolled in overdraft 
services may prefer to ``avoid fees for a service they did not 
request.'' \4\ Therefore, consistent with this opt-in design, when 
determining compliance with Regulation E's opt-in provisions, 
regulators and enforcers should inspect the financial institutions' 
records to determine whether there is evidence of affirmative consent 
to enrollment in covered overdraft services.
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    \4\ Electronic Fund Transfers, 74 FR 59033, 59038 (Nov. 17, 
2009) (amending 12 CFR part 205).
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    In the CFPB's supervisory work, examinations have found that some 
institutions have been unable to provide evidence that consumers had 
opted into overdraft coverage before they were charged fees for ATM and 
one-time debit transactions. While some institutions maintained 
policies and procedures relating to Regulation E's overdraft opt-in 
requirements, supervisory examinations found that the institutions were 
unable to show that these policies and procedures were actually 
followed with respect to individual consumers. In response to 
examination findings, institutions began maintaining records to prove 
the consumer's affirmative consent to enrollment in covered overdraft 
services.
    In supervisory and enforcement work, the CFPB has also identified 
numerous other violations of law relating to Regulation E's overdraft 
opt-in requirements over the years. These violations have included, for 
example: the failure of institutions to obtain consumers' affirmative 
consent to enrollment in covered overdraft services,\5\ and obtaining 
consumers' opt-in to covered overdraft services through deceptive and 
abusive acts or practices.\6\ The prevalence of violations related to 
overdraft opt in underscores the need for effective supervision and 
enforcement of Regulation E's overdraft opt-in provisions.
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    \5\ See, e.g., CFPB Consent Order, In re Atlantic Union Bank, 
No. 2023-CFPB-0017 (Dec. 7, 2023); CFPB Consent Order, In re Regions 
Bank, No. 2015-CFPB-0009 (Apr. 28, 2015); Supervisory Highlights, 
Summer 2015 Edition, at 23, available at https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
    \6\ See, e.g., CFPB Consent Order, In re TD Bank, N.A., No. 
2020-BCFP-0007 (Aug. 20, 2020); CFPB v. TCF National Bank, 
Stipulated Final Judgment and Order, No. 17-cv-00166 (July 20, 
2018).
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Form of Records Evidencing Opt-In

    The form of the records that demonstrate consumer consent to 
enrollment may vary according to the channel through which the consumer 
opts into covered overdraft services. For example:
     For consumers who opt into covered overdraft services in 
person or by postal mail, a copy of a form signed or initialed by the 
consumer indicating the consumer's affirmative consent to opting into 
covered overdraft services would constitute evidence of consumer 
consent to enrollment.
     For consumers who opt into covered overdraft services over 
the phone, a recording of the phone call in which the consumer elected 
to opt into covered overdraft services would constitute evidence of 
consumer consent to enrollment.
     For consumers who opt into covered overdraft services 
online or through a mobile app, a securely stored and unalterable 
``electronic signature'' as defined in the E-Sign Act (15 U.S.C. 
7006(5)) conclusively demonstrating the specific consumer's action to 
affirmatively opt in and the date that the consumer opted in would 
constitute evidence of consumer consent to enrollment.

About Consumer Financial Protection Circulars

    Consumer Financial Protection Circulars are issued to all parties 
with authority to enforce Federal consumer financial law. The CFPB is 
the principal Federal regulator responsible for administering Federal 
consumer financial law, see 12 U.S.C. 5511, including the Consumer 
Financial Protection Act's prohibition on unfair, deceptive, and 
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other 
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws 
are also enforced by State attorneys general and State regulators, 12 
U.S.C. 5552, and prudential regulators including the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, and the National 
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2) 
(exclusive enforcement authority for banks and credit unions with $10 
billion or less in assets). Some Federal consumer financial laws are 
also enforceable by other Federal agencies, including the Department of 
Justice and the Federal Trade Commission, the Farm Credit 
Administration, the Department of Transportation, and the Department of 
Agriculture. In addition, some of these laws provide for private 
enforcement.
    Consumer Financial Protection Circulars are intended to promote 
consistency in approach across the

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various enforcement agencies and parties, pursuant to the CFPB's 
statutory objective to ensure Federal consumer financial law is 
enforced consistently. 12 U.S.C. 5511(b)(4).
    Consumer Financial Protection Circulars are also intended to 
provide transparency to partner agencies regarding the CFPB's intended 
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C. 
5552(b) (consultation with CFPB by State attorneys general and 
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB 
and other agencies).
    Consumer Financial Protection Circulars are general statements of 
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They 
provide background information about applicable law, articulate 
considerations relevant to the Bureau's exercise of its authorities, 
and, in the interest of maintaining consistency, advise other parties 
with authority to enforce Federal consumer financial law. They do not 
restrict the Bureau's exercise of its authorities, impose any legal 
requirements on external parties, or create or confer any rights on 
external parties that could be enforceable in any administrative or 
civil proceeding. The CFPB Director is instructing CFPB staff as 
described herein, and the CFPB will then make final decisions on 
individual matters based on an assessment of the factual record, 
applicable law, and factors relevant to prosecutorial discretion.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-22551 Filed 10-1-24; 8:45 am]
BILLING CODE 4810-AM-P