Sept. 20 CFPB Recent Updates
Published
CFPB Issues Buy Now, Pay Later FAQs
The CFPB released Frequently Asked Question (FAQ) guidance on Buy Now, Pay Later (BNPL) products. The FAQs provide guidance on applying Regulation Z to BNPL products, such as how to apply credit card periodic statement requirements to Pay-in-Four BNPL products that are accessed by digital user accounts.
You can access the Buy Now, Pay Later FAQs here: www.consumerfinance.gov/compliance/compliance-resources/consumer-cards-resources/buy-now-pay-later-bnpl-products/.
This trend poses significant risks. We have developed a legal framework for banks over the past century designed to ensure people’s deposits are safe and that they have constant access to their funds. Deposit insurance and the special FDIC resolution process protect people if the bank fails and they retain quick access to their cash. When nonbanks engage in deposit taking, whether directly or in partnership with a bank, all these protections may not apply.
Today, the FDIC Board of Directors is proposing a rule that would strengthen requirements for banks that partner with nonbanks in offering deposit-style products.
This year, Synapse, a middleman between nonbanks offering deposit-style products to end users and their partner banks, filed for bankruptcy. The firm appears to have failed to properly track customer account balances and may have engaged in other shady practices. As a result, tens of thousands of customers have had their funds frozen for months. The banks have been unable to reconcile all the records necessary to get end users their funds back. This has led to severe harm, especially for people who were using the nonbank account as a primary checking or savings account. Read more
The updated policy provides transparency to the public and future applicants as to how the agency evaluates the statutory factors under the Bank Merger Act. Banks should not waste agency resources by submitting facially unlawful applications, including those proffered by certain megabanks, repeat offenders, and others looking to take out competitors or improve profit metrics instead of the convenience and needs of the community.
We are issuing this updated policy contemporaneously with the Department of Justice, which is withdrawing from the outdated 1995 Bank Merger Guidelines. The DOJ will consider bank mergers under its 2023 Merger Guidelines.1 This approach will ensure that bank mergers are appropriately investigated under the antitrust laws.
A decentralized banking system is critical for U.S. capitalism to work. If small businesses and entrepreneurs can’t get fair access to credit, they cannot innovate and challenge incumbents. If families struggle to affordably finance a house or a car or banks gouge them with junk fees, the American Dream is put out of reach.
Instead of giving banks free rein to merge and concentrate resources in a few big cities, Congress requires a strict pre-approval process in which regulators weigh the transaction against multiple statutory factors. Based on our analysis over the last two years, it is crystal clear that regulators have completely defied Congressional mandates. Read more
CFPB Takes Action to Stop Banks from Harvesting Overdraft Fees Without Consumers’ Consent
The Consumer Financial Protection Bureau (CFPB) published guidance to help federal and state consumer protection enforcers stop banks from charging overdraft fees based on phantom opt-in agreements. Phantom opt-ins occur when banks claim they have customers’ consent to charge overdraft fees but there is no proof they actually obtained that consent. Under the Electronic Fund Transfer Act, banks cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in.
“The CFPB has found instances where banks have no evidence that they obtained consent for overdraft,” said CFPB Director Rohit Chopra. “No Americans should be hit with bank account fees that they never agreed to.”
When people withdraw money from an ATM or make a purchase with a debit card, the transaction sometimes can drop their account balance below $0. In such cases, banks can either decline the transaction or let it go through by extending an overdraft loan. If a bank covers the transaction through an overdraft loan, the bank can only charge a fee if the consumer opted into overdraft services.
Consumer protection law enforcers should assume consumers have not opted into overdraft unless the banks can prove otherwise. The CFPB has found that some banks have been unable to provide such evidence before they charged consumers fees for overdraft loans to cover ATM and one-time debit transactions.
The CFPB has observed that in many circumstances, financial institutions have created serious obstacles to consumers taking steps to anticipate and avoid overdraft fees. In fact, for a sizeable group of consumers who overdraft infrequently, they report being surprised by their most recent overdraft. The CFPB took action against Regions Bank for the bank’s unintelligible and manipulative processes that resulted in unexpected overdraft fees. The CFPB also has taken enforcement actions when institutions have violated the Electronic Transfer Fund Act’s implementing Regulation E or engaged in related deceptive or abusive practices. Most recently, in 2023, the CFPB ordered Atlantic Union Bank to pay $6.2 million for, among other overdraft violations, improperly enrolling customers in overdraft. The CFPB has taken similar actions against TD Bank and TCF National Bank. Read more