Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—Industry groups urge CFPB to rescind recent Circular on overdraft opt-in practices, (Oct 23, 2024)
Organizations Mentioned:American Bankers Association | America’s Credit Unions | Bank Policy Institute | Consumer Bankers Association | Consumer Financial Protection Bureau | Independent Community Bankers of America | U.S. Chamber of Commerce
In a comment letter, several banking groups urged the Bureau to rescind its circular on overdraft opt-in procedures, arguing that the Circular suggests that these new expectations will be applied retrospectively and was issued without proper regulatory rulemaking procedures.
Several industry associations and banking groups have sent a comment letter in response to the Consumer Financial Protection Bureau’s Circular 2024-05, titled “Improper Overdraft Opt-In Practices,” published on Sept. 17, 2024 (Circular). In the letter the groups urged the CFPB to rescind the Circular that imposes new expectations on banks with respect to their practices for recording and retaining their customers’ “opt-in” to the institution’s overdraft program for one-time point-of-sale debit card purchases and ATM transactions.
Circular 2024-05. In September, the Bureau released the Circular, stating that banks need proof that consumers opted in to overdraft protection. The Consumer Financial Protection Bureau warned banks and credit unions that they can be violating the law if they charge overdraft fees without documentation customers opted in (see Banking and Finance Law Daily, Sept. 18, 2024). Regulation E, under the Electronic Fund Transfer Act, governs overdraft fees and requires financial institutions to get a consumer’s “affirmative consent” before charging them overdraft fees on ATM and debit card transactions, according to a circular issued by the agency. But, the CFPB says it's encountered instances of what it calls “phantom opt-ins,” where banks claim they have consumer consent but no documentation of it.
The ABA and other groups argue that the proposed rule, which would require consumers to opt-in to receive certain circulars, could hinder the flow of important information and limit consumer access to valuable financial products and services. However, according to the letter, the proposed rule fails to consider the existing regulatory framework that already provides robust protections for consumers.
The letter argues that because the Circular “contravenes the existing requirements in Regulation E and was issued without conducting required notice-and-comment rulemaking,” the Bureau must rescind the Circular. By issuing a “circular,” which the letter notes is a document intended to advise other government agencies with enforcement authority of unlawful conduct identified by the issuing agency, “suggests that these new expectations will be applied retrospectively – i.e., that regulators will initiate supervisory or enforcement actions against financial institutions that did not record the customer’s opt-in in the manner described in the Circular or did not retain that record indefinitely.”
The industry groups write that the current opt-out system strikes a balance between protecting consumers from unwanted communications and ensuring they have access to important information about financial products and services.
The comment letter also states that the proposed rule could lead to unintended consequences, such as increased costs for financial institutions and reduced availability of certain products and services. The industry groups believe that these potential consequences could disproportionately impact vulnerable populations, who may rely on circulars to stay informed about financial opportunities.
The letter emphasizes the importance of maintaining flexibility in communication methods, as consumer preferences and technology continue to evolve. The proposed rule's rigid opt-in requirement may not align with consumer expectations and could hinder the ability of financial institutions to adapt to changing communication trends.
The letter concludes by noting that the CFPB should reconsider the proposed opt-in circular rule and instead focus on preserving the current opt-out system. The industry groups believe that this approach strikes the right balance between protecting consumers and ensuring access to important financial information.
Companies: American Bankers Association; America’s Credit Unions; Bank Policy Institute; Consumer Bankers Association; Independent Community Bankers of America; U.S. Chamber of Commerce
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