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The examinations have continued to cite UDAAPs for charging unfair unanticipated overdraft fees, such as authorize-positive settle-negative (APSN).
APSN overdraft fees can occur when a financial institution assesses overdraft fees for debit card or ATM transactions where the consumer’s account showed a sufficient available balance when the consumer authorized the transaction, but the delay between authorization and settlement resulted in an insufficient balance at the time of settlement.
To remedy this violation, financial institutions are ceasing to charge APSN overdraft fees and have remediated more than $98 million to injured consumers since this work began in 2022.
In recent examinations, CFPB found that financial institutions engaged in UDAAPs by assessing paper statement fees and returned mail fees for paper statements that were returned undelivered, or fees for paper statements they didn’t attempt to print and deliver.
Financial institutions will remedy these violations by discontinuing fees for paper statements and returned mail fees for paper statements they didn’t attempt to deliver, and will refund millions of dollars in those fees.
The examinations have also evaluated the returned deposit item fee practices at some financial institutions. This is a follow up to CFPB’s October 2022 compliance bulletin that stated it’s likely for a UDAAP to have a blanket policy of charging return deposit item fees, also known as surprise depositor fees, when a check is returned unpaid.
A financial institution might return a check for several reasons, including insufficient funds in the originator’s account, a stop payment order, or problems with information on the check. This practice is a UDAAP as consumers lack information about and control over whether a check will clear and so cannot reasonably avoid this injury.
Most of the financial institutions examined have advised CFPB that they have eliminated returned deposit item fees.
The examinations have evaluated how financial institutions managed pandemic relief benefits deposited into consumer accounts, specifically whether consumers lost access to economic impact payments (EIP) and unemployment insurance benefits because of garnishment or setoff policies.
In response to any findings, financial institutions have refunded protected EIPs that were improperly taken to set-off fees, refunded garnishment-related fees improperly assessed for garnishment of EIPs, and updated policies to ensure compliance with applicable set-off and garnishment practices.
Approximately $685,000 has been returned to consumers for improper set off of EIPs and approximately $315,000 for improper garnishment-related fees.
Examinations also included reviews of fee practices in connection with auto loans, such as UDAAPs related to auto servicers’ handling of refunds of add-on products after loans terminate early.
When a consumer purchases an add-on product at the time of the vehicle purchase, auto dealers and finance companies often charge for the entire cost of the add-on product at origination, and add the cost of the add-on product as a lump sum to the total amount financed. This means consumers often make payments on these products throughout the term of the loan, even if the product expires sooner.
Examinations have found UDAAPs when auto servicers failed to provide refunds on add-on products following early loan termination due to early payoff or repossession, or at any time when the consumer has lost use of the vehicle.
Consumers might not even be aware that the contract allows them to apply for refunds. As a result of these findings, auto servicers are remediating more than $20 million to affected consumers.
In addition to failing to provide refunds when appropriate, auto servicers also engaged in UDAPPs when they used miscalculated add-on product refund amounts after loans terminated early. This occurred when they used the wrong amount for the price of the add-on product or because they deducted fees, such as cancellation fees, which were not authorized under the contract.
Auto servicers are remediating consumers who have been impacted by this practice.
Examinations also looked at activities of remittance transfer providers to confirm that fees are correctly disclosed and charged in accordance with Subpart B of Regulation E (the Remittance Rule). The Remittance Rule requires remittance transfer providers to disclose any transfer fees they charge.
By failing to disclose fees properly, the total wire amount the recipients received was lower than the amount that had been disclosed.
The Remittance Rule also requires a provider to refund to the sender any fees imposed in the event of an error. Examiners found that certain providers failed to correct errors by refunding fees within the required time frame.
Such financial institutions have implemented corrective action to prevent future violations and provided remediation as necessary to consumers charged fees.
The library of CFPB’s Supervisory Highlights can be found here.
PATRICIA O’CONNELL is lead compliance counsel for America’s Credit Unions.