CFPB guidance on reopening accounts to harvest fees

The CFPB on Wednesday announced a new circular affirming that a bank may violate federal law if it unilaterally reopens a deposit account to process transactions after a consumer has already closed it. The CFPB has observed in complaints that even after a consumer completes all the required steps to close an account, their bank has “reopened” the closed account and assessed overdraft and nonsufficient funds fees. Consumers have reported to the CFPB that financial institutions have also charged account maintenance fees upon reopening, even if the consumer was not required to pay account maintenance fees prior to account closure.

The circular confirms that banks may risk violating the Consumer Financial Protection Act’s prohibition on unfair acts or practices by unilaterally reopening closed accounts. Consumers may incur overdraft, nonsufficient funds, or monthly maintenance fees when a closed account is reopened by the bank. This practice may also enable third parties to access a consumer’s funds without consent. If reopening the account overdraws the account, banks may also furnish negative information to consumer reporting companies if consumers do not settle negative balances quickly. Consumers often cannot reasonably avoid the risk of substantial injury caused by this practice because they cannot control a third party’s attempt to debit or deposit money, the process and timing of account closure, or the terms of deposit account agreements.

The CFPB previously ordered USAA Federal Savings Bank to pay more than $15 million in consumer remediation and penalties for, among other things, violating the Consumer Financial Protection Act by reopening deposit accounts consumers had previously closed without seeking prior authorization or providing adequate notice.

• Consumer Financial Protection Circular 2023-02, "Reopening deposit accounts that consumers previously closed"
• PUBLICATION UPDATE: Published in the Federal Register on May 24, 2023