CFPB Reminds Financial Institutions to Retain Records of Affirmative Consent for Overdraft Opt-in

On September 17, 2024, the CFPB issued Consumer Financial Protection Circular 2024-05 on improper overdraft practices. The circular reminded financial institutions of their obligation to retain records that prove the consumer consented to the institution’s payment of ATM and one-time debit card transactions.

The Electronic Funds Transfer Act (EFTA) and Regulation E (12 CFR § 1005.17(b)(1)), prohibit financial institutions from charging an overdraft fee for paying ATM or one-time debit card transactions (“regulated overdrafts”) unless an institution: (i) provides the consumer with its overdraft service disclosure (a/k/a What You Need to Know About Overdraft and Overdraft Fees); (ii) provides the consumer a reasonable opportunity to opt in; (iii) obtains the consumer’s affirmative consent, or opt-in; and (iv) provides the consumer with a written confirmation of the consent, which includes a statement informing the consumer of the right to revoke such consent. Regulation E (12 CFR § 1005.13(b)(1)) further provides that the institution shall retain evidence of compliance with the regulation for two years from the date disclosures are required to be made.

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The CFPB indicates that in its supervisory work, examiners found that some institutions were unable to produce evidence that consumers consented to regulated overdrafts or demonstrate that overdraft policies and procedures were followed with respect to individual customers. The CFPB provided the following examples of records that evidence consumer consent to regulated overdrafts:

• For consumers who opt into covered overdraft services in person or by postal mail, a copy of a form signed or initialed by the consumer indicating the consumer’s affirmative consent to opting into covered overdraft services would constitute evidence of consumer consent to enrollment.

• For consumers who opt into covered overdraft services over the phone, a recording of the phone call in which the consumer elected to opt into covered overdraft services would constitute evidence of consumer consent to enrollment.

• For consumers who opt into covered overdraft services online or through a mobile app, a securely stored and unalterable “electronic signature” as defined in the E-Sign Act (15 U.S.C. 7006(5)) conclusively demonstrating the specific consumer’s action to affirmatively opt in and the date that the consumer opted in would constitute evidence of consumer consent to enrollment.

Last December, the CFPB entered into a consent order with Atlantic Union Bank (the “Bank”) for the Bank’s failure to obtain consumers’ affirmative consent to enrollment in regulated overdrafts during 2017-2020. The consent order stemmed from the Bank’s in-branch and phone opt-in practices. The consent order included new requirements related to obtaining regulated overdraft opt-ins by phone as it requires the Bank to send the What You Need to Know About Overdrafts and Overdraft Fees disclosure and obtain the consumer’s signature for any phone opt-ins.

At that time, we noted that institutions should review their practices for obtaining regulated overdraft opt-ins by phone in light of the consent order and consider whether a phone opt-in is still a viable option. As we have seen in many other CFPB overdraft and NSF consent orders, a change in practices will not help an institution avoid enforcement for prior acts or practices that the CFPB disfavors or deems unlawful. We also published an article titled “Overdraft Opt-In Practices Hold Risks For Banks” last March.

Credit Unions should also expect increased scrutiny on overdrafts and NSFs from the NCUA. Earlier this year, the NCUA indicated that it plans to focus on “website advertising, balance calculation methods, and settlement processes” related to overdraft programs, as well as evaluating credit union adjustments to overdraft programs to address consumer compliance risk and potential consumer harm from unexpected overdraft fees. In March, credit unions with $1 billion or more in assets began to report fee income derived from overdraft and NSF fees as a separate line item on call reports.

As Ballard Spahr previously blogged, the CFPB has proposed rulemaking on overdraft credit and NSF fees and has been closely monitoring overdraft and NSF practices. Ballard Spahr held a webinar entitled “A close look at the Consumer Financial Protection Bureau’s proposed rules on overdraft and nonsufficient funds fees,” which was repurposed as a podcast episode.