By Ray Birch
WASHINGTON—New guidance from the CFPB related to “junk fees” may not be “rules,” but they are going to have an affect on credit unions, including driving more regulator—and plaintiffs’ attorneys’—attention to fees other than overdrafts, such as those for returned deposits, according to one attorney.
The CFPB in October released guidance addressing “surprise” overdraft fees (Consumer Financial Protection Circular) that includes a focus on overdraft fees charged when consumers have enough money in their account to cover a debit charge at the time the FI authorizes it. The agency also addressed the practice of what it calls “indiscriminately charging fees to every person who deposits a check that bounces” (compliance bulletin on surprise depositor fees).
“I think there’s two key things to think about from this guidance,” said Brandy Bruyere, a partner at Honigman, LLP. “First, these compliance circulars the CFPB created aim to tell fellow regulators—like NCUA and state regulators—how the Bureau is interpreting rules and laws that are under its authority, but another regulator is responsible for supervision. Second, this gives plaintiffs’ attorneys more authority to point to when challenging fees. Now, both of these kinds of fees have been targeted in class actions against credit unions going back several years.”
Bruyere said her firm sees new NSF/overdraft lawsuits filed against CUs every month.
“I'll say the overdraft lawsuits and NSF lawsuits hit a peak a couple years ago, and they've since gone down,” said Bruyere. “But these suits continue, alleging the way the credit union is assessing overdraft or insufficient fund fees is unfair—such as those that are authorized positive and settled negative.”
In this case, Bruyere said the circulars are the CFPB’s way of telling other regulators, state and federal, that this is how the Bureau sees overdraft fees and other so-called junk fees.
“These do add fuel to some existing fires, so to speak, especially on the surprise overdrafts fees,” Bruyere told CUToday.info.
The New Concern
Now, the growing concern for many financial institutions is over fees for returned deposits.
“The compliance bulletin on depositor fees is intended to put the industry on notice—such as this is how we're going to enforce the law,” said Bruyere. “But I also think this sends a signal to plaintiffs’ attorneys that there's a new bucket of fees that they maybe haven't already attacked. Now they may have those on their menu.”
One Person’s Story
Bruyere explained the returned deposit fees are often assessed for a bounced check.
“For example, I deposit a check at my credit union, and maybe it's from my friend who doesn’t have any money in his account. So, the credit union charges me a fee, which varies from credit union to credit union. But I had no way of knowing that check would not clear. The CFPB is saying, ‘Well, if you just assess a return item fee via a blanket policy, regardless of any specific pattern of behavior on the consumer's part, such as they bounce checks all the time, or you don’t base the charge on anything specific about the transaction, such as the check isn't properly endorsed,’ the CFPB is saying that's an unfair practice. That's likely to be a UDAAP violation.”
Bruyere pointed out the CFPB, via a footnote in its new bulletin, said it does not intend to enforce any rules around “surprise” returned deposit fees until sometime in the future.
“They're basically giving us about a year,” she said. “I just find this somewhat interesting. When they put these documents out…The bulletin just drops out of nowhere, in the middle of a week, and I am scrambling to decide what do I do with these fees. How does it change my policies?”
Brandy Bruyere
Do Not Ignore!
Bruyere advises credit unions, regarding both overdraft and returned deposit fees, to not ignore the new guidance, and prepare for what the CFPB will eventually decide to do.
“Number one, which I think some credit unions have already been doing, is really looking at their overdraft fee programs,” she said. “Look closely at how your policy is disclosed, and what might they be doing when fees pile up on people. With these return deposit fees, I think it's going to be useful then to look at what are you charging these fees for and look at when are you charging these fees. How are they currently disclosed to your members, and are there levers within your operating system to not charge members on a blanket basis.”
Bruyere added that credit unions should look into their transaction processing systems to see if they can find ways to recognize behaviors in which returned deposit fees should not be assessed and then when they are fair to charge.
“Does your system have this capacity,” said Bruyere. “The CFPB is telling us we need to get our systems to recognize these potential scenarios.”
An ‘Overall, Longer-Term Pattern’
Junk fees will just continue to be more closely followed by the CFPB and other regulators, Bruyere is predicting.
“I think these fees are going to continue to be attacked by the current administration,” she said, reminding the White House has also released a statement regarding junk fees.
“This is part of an overall longer-term pattern of regulators looking at all these ancillary fees, which are also in the crosshairs plaintiffs’ attorneys,” she said. “We need to be thinking critically about what does the future look like with less fee income. Are there alternatives, and could this lead to more lawsuits. For example, I've seen plaintiff's attorneys going to CFPB supervisory highlights documents to argue in a case. Again, these guidance documents are not law, but once they are out there they create risk for credit unions—risk that must be addressed.”