If a financial institution unilaterally reopens a closed deposit account to process a transaction, does that constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)? According to the Consumer Financial Protection Bureau (CFPB) in its Consumer Financial Protection Circular 2023-02 issued on May 10, the answer is yes: “This practice may impose substantial injury on consumers that that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.” The CFPB also notes that, depending on the circumstances, reopening a closed deposit account may implicate the CFPA’s prohibition on deceptive or abusive acts or practices. Under the CFPA, unfair, deceptive or abusive acts or practices (UDAAP) are prohibited.

In its circular, the CFPB warns financial institutions that they risk violating UDAAP by unilaterally reopening deposit accounts that consumers previously closed. This situation may arise after a customer completes all the necessary steps to close an account. Deposit account agreements typically provide that the financial institution may return any debits or deposits to the account received after closure without facing liability. However, sometimes when a financial institution unilaterally reopens the closed account to process a debit transaction or deposit it receives, consumers may incur overdraft, nonsufficient funds, or monthly maintenance fees. Also, when a financial institution processes a credit through a reopened account, the account funds may become available to third-party creditors.

Our Take:

This guidance appears to be an extension of the CFPB’s continuing war on “junk fees.” It is also notable because, as noted in Consumer Financial Protection Circular 2022-01, the CFPB’s circulars are chiefly designed to provide guidance to other regulators about how to interpret and apply consumer financial laws for which the CFPB has primary jurisdiction. As a result, this guidance will impact not only CFPB-supervised financial institutions, but also those institutions supervised by other federal and state regulators.

Troutman Pepper will continue to monitor the CFPB’s activity in this area.