The U.S. Consumer Financial Protection Bureau (“CFPB”) publishes an agenda of its planned rulemaking activities twice a year – typically in the Spring and Fall. These agendas provide a brief look at the focuses and priorities of the CFPB for the coming year. The CFPB published its Spring 2023 rulemaking agenda, indicating that it anticipates having this agenda under consideration during the period from June 1, 2023 to May 31, 2024. While only now in a preliminary state, the agenda shows the CFPB has set its sights on common banking practices including overdraft fees, non-sufficient funds fees, and credit reporting.
The agenda lists Prerules, Proposed Rules, and Final Rules under consideration, as part of the Office of Budget and Management’s broader Unified Agenda of Federal Regulatory and Deregulatory Actions. This three-stage rulemaking process is a part of the broader regulatory process used by a number of federal agencies. In the Prerule Stage, the CFPB provides notice that it is looking into a certain issue or concern. After the CFPB has researched the issue and determined that a new Rule is necessary, it will often publish a Notice of Proposed Rule Making in the Proposed Rule Stage. This allows concerned parties to make public comments on the proposed rules during a certain period. After this period, the CFPB will review the comments in the Final Rule Stage and make a decision whether to proceed with the rule, modify the rule, or potentially withdraw the rule.
The following three issues have been identified as the CFPB as being in the “Prerule” Stage, and they provide a glimpse at the direction the CFPB intends to take its regulations.
1. Overdraft Fees
The changes and amendments regarding Overdraft Fees that are being considered by the CFPB pertain to Regulation Z (“Reg Z”). Reg Z was adopted by the Federal Reserve Board in 1969 as a part of the Truth in Lending Act of 1968. The major goals of Reg Z were to provide consumers with better information about the true costs of credit and to protect them from certain misleading practices by the lending industry. Lenders are required to disclose interest rates in writing, give borrowers the chance to cancel certain types of loans within a specified period, use clear language about loan and credit terms, and respond to complaints, among other requirements.
As the CFPB notes, Reg Z only applies to certain types of overdraft services offered by financial institutions. Whether Reg Z applies depends on whether the fees imposed in connection with the overdraft services are considered “finance charges” – which is, in turn, determined using special rules that were developed when Reg Z was first adopted. The issue identified by the CFPB involves the evolving nature of overdraft services, including how accounts can be overdrawn and how financial institutions determine whether to advance funds to pay the overdrawn amount, which have significantly changed since the adoption of Reg Z in the late 1969. The CFPB is accordingly considering whether to propose updates to Reg Z regarding these special rules. While it is not yet clear exactly what proposed rules may look like, the CFPB has been hostile to overdraft and similar fees in the past and has issued various guidance already suggesting that certain types of overdraft fees may constitute unfair, deceptive, and abusive actions under the Consumer Financial Protection Act.
2. Non-Sufficient Funds Fees
Even though fees for insufficient funds are trending downward, the CFPB still has the issue on their radar. The CFPB clarifies that when consumers using deposit accounts engage in transactions that exceed their accounts’ balances, sometimes “the depository institution will pay that transaction,” which results in an overdraft (and typically a corresponding overdraft fee). However, in some situations “the depository institution will decline to pay the transaction” and simply charge the consumer a fee – also known as a Non-sufficient Funds (“NSF”) Fee. The CFPB acknowledges that although NSF fees used to be a significant source of fee revenue from deposit accounts for depository institutions, lately some large financial institutions have voluntarily stopped charging such fees – a trend that the CFPB has labeled a “positive development” that it estimates will cause consumers to pay about 50% less of these fees, for an annual savings of about $1 billion. However, even with these voluntary trends, the CFPB continues to closely monitor the situation and are “considering new rules regarding NSF fees.”
3. Fair Credit Reporting Act
Finally, the CFPB is also considering amendments to Regulation V. The CFPB states that “Congress enacted The Fair Credit Reporting Act (FCRA) to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.” In order to comply with the FCRA, the Federal Reserve adopted Regulation V (“Reg V”), which, together with the FCRA, “impose legal duties on consumer reporting agencies, data furnishers, and users of consumer reports, and furnishers of information to consumer reporting agencies.” Reg V also gives consumers the right to initiate a formal dispute if they think that their credit information has been inaccurately entered or improperly handled by a financial institution. In July of 2011, the enforcement of the FCRA through Reg V was transferred from the Federal Reserve to the newly created CFPB.
Similarly to NSF fees, in its agenda, the CFPB simply states that it “is considering whether to amend Regulation V.” This could take a number of forms; however, the CFPB may have already signaled one proposed concern. On January 11, 2023, the CFPB proposed the establishment of a new public registry of terms and conditions in many “form” contracts that claim to waive or limit consumer rights and protections. The CFPB listed several examples of terms and conditions that would be included in the registry, and one category included contract provisions that would purport to “undermine credit reporting rights” such as the ability of aggrieved consumers to pursue legal action to remedy alleged violations of the FCRA. If this pattern holds true, banking institutions should be on the lookout for more regulation seeking to bolster consumers’ credit reporting rights.
Despite the general trend exhibited by larger banks toward eliminating or reducing overdraft and NSF fees, the CFPB has continued criticizing these fees, which it categorizes as “junk fees.” Last year in January 2022, the CFPB requested information on these fees, and in October of 2022 issued guidance on unfair practices regarding “surprise” overdraft fees. While these issues are still in the Prerule Stage, their inclusion in the CFPB’s agenda along with its concerns about credit reporting indicates the CFPB’s growing focus on creating further protections for banking consumers with the reinvigoration of its regulatory powers. As these proposals move through the rulemaking process, details are likely to clarify just how far the CFPB intends to go.
Link to the CFPB Agenda: https://www.consumerfinance.gov/rules-policy/regulatory-agenda/