As part of its ongoing initiative to scrutinize so-called “junk fees,” the Consumer Financial Protection Bureau (CFPB) published guidance on two practices that it opines potentially violate the Consumer Financial Protection Act’s prohibition on unfair practices. Specifically, the CFPB published a compliance bulletin, cautioning against charging across-the-board depositor fees to consumers who deposit a check that bounces, as well as a circular on what the CFPB refers to as “surprise” overdraft fees —the CFPB’s way of referring to authorize positive, settle negative practices (APSN).

Compliance Bulletin: Depositor Fees Triggered by Depositing Checks That Are Dishonored:

• According to the CFPB, when a consumer deposits a check that bounces, banks sometimes charge a fee even when that consumer had no idea the check would bounce or is the victim of check fraud.
• According to the CFPB, while charging these fees across the board potentially violates existing law, financial institutions may employ more tailored fee policies that charge depositor fees only in situations where a depositor could have avoided the fee, such as when a depositor repeatedly deposits bad checks from the same originator.

Circular: “Surprise” Overdraft Fees:

• The CFPB asserts that these overdraft fees occur when a bank account shows that a customer has sufficient funds to complete a debit card purchase at the time of the transaction, but the consumer is later charged an overdraft fee because intervening transactions cause the balance to be insufficient to cover the debit card charge. The CFPB’s discussion of this issue references the practice of using APSN methods to assess overdraft fees, and asserts that a recent consent order entered into by the CFPB related to APSN overdrafts is applicable industrywide.
• The CFPB opined that, under the circumstances described, these “unanticipated” overdraft fees likely violate the Consumer Financial Protection Act as they “are likely to impose substantial injury on consumers that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.”

American Bankers Association President and CEO Rob Nichols criticized the CFPB’s guidance as an attempt “‘to sensationalize highly regulated fees that are already clearly disclosed to customers’ under existing federal rules.” Specifying that, “Reg DD requires banks to disclose fees charged to recipients of checks that bounce,” and “overdraft fees identified by the bureau are also disclosed under existing rules and are largely triggered by operational issues that have been addressed by technology improvements made by banks and their vendors as far back as three years ago.”

Troutman Pepper will continue to monitor important developments involving the CFPB and its junk fees initiative and will provide further updates as they become available.