On October 26, 2022 the Consumer Financial Protection Bureau (“CFPB”) published Consumer Financial Protection Circular 2022-06. Circular 2022-06 asserts that the imposition of overdraft fees upon consumers by financial institutions can constitute an unfair act or unfair practices under the Consumer Financial Protection Act (CFPA). Further Circular 2022-06 states that overdraft fees can be deemed unfair acts or practices even when the financial institution complies with federal regulations including Regulation Z, Regulation E, the Truth in Lending Act, and Electronic Fund Transfer Act.
As explained by Circular 2022-06, the CFPA prohibits conduct that constitutes an unfair act or practice. Circular 2022-06 explains that an act or practice is unfair when: (1) It causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (2) The injury is not outweighed by countervailing benefits to consumers or to competition. Circular 2022-06 specifies that overdraft fees on transactions that a consumer would not reasonably anticipate are likely to be deemed unfair under the CFPA. Additionally, Circular 2022-06 states that a consumer may not reasonably anticipate overdraft fees for a variety of reasons including, but not limited to, complex policies issued by financial institutions, and the reasonable belief that account balances shown on mobile banking apps are accurate.
In its analysis of the unfair nature of surprise overdraft fees, Circular 2022-06 shows the CFPB’s focus on the possibility that such unanticipated overdraft fees can impose a “substantial injury on consumers that they cannot reasonably avoid,” and that this substantial injury to consumers outweighs any potential benefits of the fees. Circular 2022-06 describes a “substantial injury” as “monetary harm, such as fees or costs paid by consumers because of the unfair act or practice.”
Ultimately, Circular 2022-06 concludes that a substantial injury incurred by a consumer that is not reasonably avoidable and is not outweighed by benefits to the consumer nor to the financial institution’s competition triggers CFPA liability.
