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The Consumer Financial Protection Bureau (CFPB) issued a Supervisory Highlights Junk Fees Update Special Edition in October 2023 to apprise the public on supervisory work completed since the agency published the March 2023 Issue 29 Supervisory Highlights Junk Fees Special Edition.
This 31st edition of supervisory highlights covers examination findings 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.
CFPB publishes supervisory highlights periodically to share recent examination findings to help financial institutions and the industry recognize and identify risks to consumers and comply with federal consumer financial law. The publications also include information about recent enforcement actions arising from the agency’s supervisory activities, while maintaining the confidentiality of supervised entities.
In January 2022, CFPB issued a request for information regarding fees imposed by providers of consumer financial products or services to shape the agency’s rulemaking and guidance agenda. The agency expressed an interest in hearing about people’s experiences with fees associated with their financial institution, prepaid or credit card account, mortgage, loan, or payment transfers, including:
Pursuant to this initiative into what CFPB has characterized as exploitative fees charged by some entities, the agency issued its first Supervisory Highlights Junk Fees Special Edition in March 2023. The findings in that report covered examinations involving fees in the areas of deposits, auto servicing, mortgage servicing, payday and small dollar lending, and student loan servicing completed between July 1, 2022, and Feb. 1, 2023.
This special edition provides an update on supervisory work completed since the March 2023 edition was issued. It finds that for the topics covered in the October 2023 edition, institutions refunded more than $140 million to consumers, $120 million of which was for surprise overdraft fees and double-dipping on nonsufficient funds (NSF) fees.
The key supervisory findings noted by CFPB examiners in this Fall 2023 special edition include deposits, auto servicing and remittances.
When examining depository institutions and service providers, CFPB reviewed certain fees related to deposit accounts to assess whether supervised entities engaged in any unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by the Consumer Financial Protection Act of 2010, focusing on NSF and overdraft fees.
The examinations examined core processors in their capacity as service providers because the system functionality they develop can direct many fee practices, including NSFs. Findings indicate that core processors engage in UDAAPs when the core service platform allows the assessment of unfair NSF fees on re-presented items.
System limitations didn’t allow financial institutions to refrain from charging more than one NSF fee per item without discontinuing NSF fees completely or manually waiving individual fees. This practice is a UDAAP because it caused injury to consumers, consumers could not reasonably avoid these fees, and any countervailing benefits did not outweigh the consumer injury.
To address these findings, core processors enhanced the systems to facilitate financial institutions’ implementation of policies to eliminate NSF re-presentment fees.
CFPB will also review practices of financial institutions seeking payment from the consumer’s financial institution, known as “originating depository financial institutions,” to confirm that represented transactions are coded properly to enable systems to identify the relevant transactions and cease charging NSF fees on those transactions.
In examinations of financial institutions, CFPB found UDAAPs when consumers were charged re-presentment NSF fees without having a meaningful opportunity to prevent another fee after the first failed representment attempt. The CFPB noted that this finding is consistent with its public action against Bank of America.
Although CFPB recognized that while some financial institutions may have proactively developed plans to remediate consumers for re-presentment NSF fees that were assessed, a few of these financial institutions used incomplete reports that didn’t capture all re-presentment NSF fees charged.
For example, some reports captured consumer accounts that were charged NSF fees on checks only, or on both checks and automated clearinghouse (ACH) transactions. However, these reports missed accounts that were assessed NSF fees solely on ACH transactions.
Once notified of these issues, financial institutions reviewed their remediation methodologies to guarantee coverage of both ACH and check re-presentments. Since the CFPB initiated this set of work in 2022, financial institutions have refunded more $22 million to consumers, and many financial institutions have reported plans to stop charging NSF fees altogether.
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