CFPB Orders $100 Million+ Paid in Restitution to Consumers

by Benjamin Shakespear, Consultant, Regulatory Advisory Services

The Consumer Financial Protection Bureau (CFPB) has announced that one of the country’s largest banks has agreed to pay more than $150 million in penalties and restitution for allegedly “double-dipping” on nonsufficient funds (NSF) fees, withholding credit card rewards, and opening accounts without customer knowledge or authorization. The penalties include paying $90 million in fines to the CFPB and $60 million in fines to the Office of the Comptroller of the Currency (OCC), the majority of which will be used to redress harmed consumers. 

Double-Dipping and Junk Fees 

The first alleged violation involves allegations of “double-dipping” and junk fees. The Order states that from 2018 until 2022 the bank generated hundreds of millions of dollars and substantially harmed consumers by improperly assessing NSF fees of $35.00 each time the bank returned unpaid a re-presented Automated Clearing House (ACH) transaction or check, despite already having charged consumers an NSF fee on the initial returned transaction (Re-Presentment NSF Fees). Consumers were unable to reasonably understand that they could be assessed a second fee, and, even if they did, they could not reasonably avoid it, because the consumer does not know when a merchant will re-present transactions for payment. 

Additionally, consumers couldn’t stop payment without incurring additional substantial costs, whether it worked or not. The Bureau concluded that the policy caused substantial injury that was not outweighed by countervailing benefits to consumers or competition. It provided “little to no benefit” to consumers and was not a deterrent relevant to the integrity of the financial system, because consumers could not reasonably avoid them. As a result, the banks Re-Presentment NSF Fees constituted unfair acts or practices in violation of sections 1031 and 1036 of the Consumer Financial Protection Act. 

Misleading Net Impression 

The second violation stems from online advertisements of rewards cards and sign-up bonuses. The Bureau found that between 2012 and 2021, the bank advertised sign-up bonuses on its website, and some of those advertisements, including the online terms and conditions, did not expressly state that the bonus offers were limited to online applicants. As a result, the bank created the “misleading net impression” that the bonus offers were available to all applicants, including in-person or over-the-phone applicants, in violation of the Consumer Financial Protection Act’s prohibition on “unfair, deceptive, or abusive” acts or practices.

Deceptive Sign-Up Bonuses  

The third violation stems from targeted promotions of rewards cards and sign-up bonuses. The Bureau found that in 2013 the Bank began targeting certain consumers to be invited to apply for a rewards card with a sign-up bonus when they called the bank or visited a branch. Although these representations were material to some consumer's decisions to sign-up, some consumers did not receive the bonus, because the bank’s employees did not accurately complete the application process, despite the bank’s knowledge and the consumer’s reasonable understanding that they would receive a sign-up bonus. The Bureau found that the bank engaged in a deceptive act or practice by promising (but not providing) sign-up bonuses to certain targeted consumers, a violation of the Consumer Financial Protection Act’s prohibition on “unfair, deceptive, or abusive” acts or practices.

Opening Accounts Without Consumer Consent

The final violation involves the alleged opening of accounts without the knowledge or consent of the consumer. The Bureau alleged that in response to sales pressure and incentives, the bank’s employees were sometimes submitting applications (including obtaining consumer reports) and issuing credit cards without consumers’ consent. Under the Truth in Lending Act, “no credit card shall be issued except in response to a request or application therefor.”. Regulation Z requires that no credit card be issued except in response to an oral or written request or application. Additionally, by obtaining consumer reports without a permissible purpose, the bank was found to have violated the Fair Credit Reporting Act. The alleged violations of TILA and the FCRA also breached the Consumer Financial Protection Act’s prohibition on offering or providing “any financial product or service not in conformity with Federal consumer financial law.”

Consequences

1. $150 Million Penalty + Immediate End to Unauthorized Accounts

In addition to paying over $150 million in penalties and restitution, under the terms of the Order the bank must stop opening unauthorized accounts. They have already addressed the cause–individual sales goals and sales-based competition–by eliminating sales goals for compensation incentives and for performance management for employees primarily responsible for the sale of consumer credit card accounts. 

2. Increased Visibility for Bonuses Promised

The bank must disclose “material limitations” on any rewards card bonuses and provide bonuses as advertised. 

 
3. Junk Fees Prohibited

While the bank has already reduced its reliance on junk fees, they are prohibited from charging repeat NSF fees in the future. This action by the Bureau represents one of the largest penalties since they issued new guidance in October 2022 on several junk fee practices that violate the CFPB’s prohibition on conduct that constitutes an unfair act or practice, including certain NSF fees. 

We Can Help You Avoid Penalties

Increased CFPB activity concerning various bank fees, called “junk fees” by the consumer watchdog, is a timely reminder to financial institutions to review their NSF fee structure, processes, and policies. Not sure where to start? We can help! With direct access to our team of compliance professionals, former examiners, and licensed attorneys, as well as our database of compliance webinars, you can ensure that you stay compliant and up-to-date on any regulatory changes.

Contact us for regulatory compliance assistance!