On May 10th, the CFPB published a new Consumer Financial Protection Circular 2023-02.
The Circular addresses the reopening of deposit accounts that were previously closed.
What guidance is provided?
Circular 2023-02 does provide extensive background and analysis on the topic. However, a high-level summarization of this guidance was provided in the form of the following Q&A:
Q – “After consumers have closed deposit accounts if a financial institution unilaterally reopens those accounts to process a debit (i.e., withdrawal, ACH transaction, check) or deposit, can it constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)?”
A – “Yes. After consumers have closed deposit accounts, if a financial institution unilaterally reopens those accounts to process debits or deposits, it can constitute an unfair practice under the CFPA. This practice may impose substantial injury on consumers that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.”
So what's a financial institution to do?
An important first step is for Deposit Operations, Compliance, and other stakeholders to review the CFPB’s Circular, while also considering the institution’s process for handling transactions that are presented after an account is closed.
As the Circular highlights, the process of account closure takes time and effort and can vary between institutions. The CFPB noted that the closure can take several steps to process and an institution “typically returns any funds remaining in the account to the consumer at closure and the consumer typically must pay any negative balance at closure.” However, they also note that some institutions “require customers to provide a certain period of notice (e.g., a week) prior to closing the account to provide time for the financial institution to process any pending debits or deposits.”
Going forward, institutions should have a clear understanding of their own process. That process should be clearly documented so that there is no ambiguity amongst employees as to handling account closure and how transactions are handled after that closure. Also, determine whether your account agreement addresses the account closure process so you will have an understanding of what has been disclosed to your customer.
As the Circular contains an analysis of situations that have constituted a violation of the prohibition on unfair acts or practices, any review should maintain a focus on any practices that could cause substantial injury to consumers that the consumers cannot reasonably avoid.
Interested persons may find the CFPB’s Circular 2023-02 here.
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