The Consumer Financial Protection Bureau (CFPB) recently issued Circular 2024-05 (Circular). The CFPB considered whether financial institutions could violate the law by charging fees for providing overdraft services without obtaining consumers’ affirmative consent. By answering in the affirmative, the Circular reinforces the CFPB’s “opt-in regime,” as advanced in Regulation E’s overdraft provisions. The Circular, issued Sept. 17, 2024, serves as an important reminder for financial institutions that consumers are not presumptively enrolled in overdraft services; instead, consumers must be given an opportunity to clearly and affirmatively opt-in to such services, and consent to enrollment must be evidenced in writing or electronically documented before customers can be charged fees for these services.
Regulation E Background
The CFPB codified Regulation E several months after rulemaking authority was transferred to the CFPB from the Federal Reserve Board in July 2011. Subpart A of Regulation E implements the Electronic Fund Transfer Act (EFTA), which contains rules relating to “the rights, liabilities, and responsibilities of participants in the electronic fund and remittance transfer systems.” Those rules contain the CFPB’s perspective on overdraft services and fees. In effect, Regulation E obligates financial institutions to provide customers with a “reasonable opportunity . . . to affirmatively consent” to opt-in to overdraft services, and to obtain their affirmative consent before levying associated fees. Financial institutions must prove such affirmative consent with “written or electronic notice,” detailing the provided services prior to opt-in, and with written or electronic confirmation of the customer’s consent to opting in.
The Circular highlights prior CFPB consent orders related to Regulation E’s overdraft opt-in requirements. These consent orders resulted in large penalties for failure to obtain affirmative consent from customers and deceptive or abusive overdraft opt-in practices. To avoid becoming a target of the CFPB, financial institutions must do more than maintain policies and procedures covering Regulation E’s opt-in requirements. Rather, financial institutions must demonstrate their internal policies or procedures are followed with record proof.
How to Demonstrate Compliance on Overdraft Opt-in Requirements
The Circular provides financial institutions with guidance on demonstrating their compliance with Regulation E and its opt-in requirements. The following practices properly give customers an opportunity to affirmatively consent to enrollment in overdraft services, and confirm enrollment under Regulation E:
- Opt-in in person or by postal mail with a hardcopy form, signed or initialed by the customer, indicating the customer’s consent to opting in to overdraft services;
- Opt-in with a phone recording of the customer providing consent to opting in to overdraft services;
- Opt-in with an electronic signature online or in a mobile app demonstrating the customer’s consent to opting in to overdraft services.
The Circular reminds financial institutions of the CFPB’s focus on overdraft practices and fees. Financial institutions must obtain and document customer opt-in to overdraft services before charging associated fees. In addition, financial institutions must administer appropriate policies and procedures to retain the documentation. While overdraft fees remain a key focus of the CFPB’s supervisory and enforcement efforts, financial institutions are also cautioned that class actions lawsuits targeting overdraft practices remain a threat.
Law Clerk Ryan M. Brennan contributed to this report.
[1] Consumer Financial Protection Bureau, Consumer Financial Protection Circular 2024-05, Improper Overdraft Opt-In Practices (Sept. 17, 2024).
[1] See Consumer Financial Protection Bureau, Electronic Fund Transfers (Regulation E); Amendments (June 25, 2020), https://www.consumerfinance.gov/rules-policy/final-rules/electronic-fund-transfers-regulation-e/.
[1] Id.
[1] 12 CFR 1005.17(b)(1)(ii) & (iii).
[1] 12 CFR 1005.17(b)(1)(i) & (iv).
[1] See Consumer Financial Protection Bureau, Supervisory Highlights, Summer 2015 Edition, at 23 (Summer 2015), https://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf. [1] See Consumer Financial Protection Bureau, supra note 1.
