Regulatory body, CFPB, requests banks to provide evidence of consumer agreements for opting out of overdraft services.
In a move aimed at bolstering consumer protection, the Consumer Financial Protection Bureau (CFPB) has reiterated the need for banks and credit unions to obtain affirmative consent from customers before enrolling them in overdraft coverage for ATM and debit card transactions. This requirement, as outlined in the Electronic Fund Transfer Act (EFTA) and Regulation E, is crucial to ensure compliance with these regulations.
The reminder comes as the CFPB has withdrawn several guidance documents related to improper overdraft opt-in practices, signalling a shift in its approach. The withdrawal implies that formal rulemaking procedures must be followed to create new legal obligations rather than relying on advisory guidance. However, the core regulatory requirement of obtaining and documenting affirmative consent remains critical under existing laws.
To comply with the CFPB's rules, banks must provide clear, conspicuous disclosure to customers about overdraft services and obtain their explicit consent before charging overdraft fees. This consent must be documented and retained as proof, as failure to do so could result in enforcement action.
The CFPB's recent enforcement actions have focused on unfair overdraft fee practices, such as charging fees when sufficient funds appeared available at the time of the transaction but were not posted timely. However, some settlements and consent orders have been terminated or modified mid-2025, highlighting ongoing regulatory scrutiny.
The CFPB has also addressed "phantom opt-in" agreements, where banks claim to have customers' consent for overdraft fees but lack proof. Signed forms, unalterable electronic signatures, or recorded phone calls can serve as proof that consumers opted in to overdraft coverage.
Financial institutions should closely monitor CFPB updates and consult legal counsel to ensure compliance with current overdraft consent regulations. The CFPB's policy reminder is a reminder of its commitment to protecting consumers from unnecessary bank account fees.
For instance, the CFPB recently issued a $6.2 million settlement against Atlantic Union Bank for enrolling thousands of checking account holders into overdraft programs without providing proper disclosures. This case serves as an example of the scenarios the CFPB aims to root out through its policy reminder.
Under the proposed rule, overdraft charges would be classified as extensions of credit, making them subject to the same consumer protections as credit cards under the Truth in Lending Act. The CFPB has also proposed reducing overdraft fees charged by banks with more than $10 billion in assets to between $3 and $14.
Moreover, banks would be required to disclose an annual percentage rate for overdraft charges under the proposed rule. This move is aimed at providing greater transparency and helping consumers make informed decisions about their financial choices.
In summary, banks must obtain and keep proof of affirmative customer consent before providing overdraft coverage on ATM and debit card transactions. Institutions should maintain detailed records of customer opt-in consents to comply with CFPB rules and avoid enforcement risk. Recent CFPB enforcement reflects concern about improper overdraft fees but some consent orders have been terminated following remediation efforts. Financial institutions should closely monitor CFPB updates and consult legal counsel to ensure compliance with current overdraft consent regulations.
Banks and financial institutions need to pay attention to their business practices, particularly in the area of finance, when it comes to overdraft coverage. To ensure compliance with regulations such as the Electronic Fund Transfer Act (EFTA) and Regulation E, these institutions must obtain affirmative consent from customers before enrolling them in overdraft coverage for ATM and debit card transactions, or face potential enforcement action from the Consumer Financial Protection Bureau (CFPB).
Considering the CFPB's recent enforcement actions and proposed rules, it is crucial for financial institutions to closely monitor updates and seek legal counsel to avoid any violations and maintain consumer protection. This focus on overdraft fees and Bill of Rights for consumers is a clear sign of the CFPB's commitment to financial businesses remaining accountable and transparent.
