[Federal Register Volume 88, Number 100 (Wednesday, May 24, 2023)]
[Rules and Regulations]
[Pages 33545-33548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10982]


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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Chapter X


Consumer Financial Protection Circular 2023-02: Reopening Deposit 
Accounts That Consumers Previously Closed

AGENCY: Consumer Financial Protection Bureau.

ACTION: Consumer financial protection circular.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) has issued 
Consumer Financial Protection Circular 2023-02, titled, ``Reopening 
Deposit Accounts That Consumers Previously

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Closed.'' In this circular, the CFPB responds to the question, ``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)?''

DATES: The Bureau released this circular on its website on May 10, 
2023.

ADDRESSES: Enforcers, and the broader public, can provide feedback and 
comments to [email protected].

FOR FURTHER INFORMATION CONTACT: Terry J. Randall, Senior Counsel for 
Policy and Strategy, Office of Enforcement, at (202) 435-9497. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

Question Presented

    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)?

Response

    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 that they 
cannot reasonably avoid and that is not outweighed by countervailing 
benefits to consumers or competition.

Background

    Consumers may elect to close a deposit account for a variety of 
reasons. For example, after moving to a new area, a consumer may elect 
to use a new account that they opened with a different financial 
institution that has a branch close to their new home. A consumer also 
might close an account because they are not satisfied with the account 
for another reason, such as the imposition of fees or the adequacy of 
customer service.
    The process of closing a deposit account often takes time and 
effort. For example, closing an account typically involves taking steps 
to bring the account balance to zero at closure. The financial 
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. 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. Deposit account agreements typically indicate that 
the financial institution may return any debits or deposits to the 
account that the financial institution receives after closure and faces 
no liability for failing to honor any debits or deposits received after 
closure.
    Sometimes after a consumer completes all of the steps that the 
financial institution requires to initiate the process of closing a 
deposit account and the financial institution completes the request, 
the financial institution unilaterally reopens the closed account if 
the institution receives a debit or deposit to the closed account. 
Financial institutions sometimes reopen an account even if doing so 
would overdraw the account, causing the financial institution to impose 
overdraft and non-sufficient funds (NSF) fees. Financial institutions 
may also charge consumers account maintenance fees upon reopening, even 
if the consumers were not required to pay such fees prior to account 
closure (e.g., because the account previously qualified to have the 
fees waived).
    In addition to subjecting consumers to fees, when a financial 
institution processes a credit through an account that has reopened, 
the consumer's funds may become available to third parties, including 
third parties that do not have permission to access their funds.
    The Consumer Financial Protection Bureau (CFPB) has brought an 
enforcement action regarding the practice of account reopening under 
the CFPA's prohibition against unfair, deceptive, or abusive 
practices.\1\ The CFPB found that a financial institution engaged in an 
unfair practice by reopening deposit accounts consumers had previously 
closed without seeking prior authorization or providing timely notice. 
This practice of reopening closed deposit accounts caused some account 
balances to become negative and potentially subjected consumers to 
various fees, including overdraft and NSF fees. In addition, when the 
financial institution reopened an account to process a deposit, 
creditors had the opportunity to initiate debits to the account and 
draw down the funds, possibly resulting in a negative balance and the 
accumulation of fees. These practices resulted in hundreds of thousands 
of dollars in fees charged to consumers. The CFPB concluded that the 
institution's practice of reopening consumer accounts without obtaining 
consumers' prior authorization and providing timely notice caused 
substantial injury to consumers that was not reasonably avoidable or 
outweighed by any countervailing benefit to consumers or to 
competition.
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    \1\ USAA Federal Savings Bank, File No. 2019-BCFP-0001 (Jan. 3, 
2019).
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Analysis and Findings

    A financial institution's unilateral reopening of deposit accounts 
that consumers previously closed can constitute a violation of the 
CFPA's probation on unfair acts or practices.\2\
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    \2\ Depending on the circumstances, reopening a closed deposit 
account may also implicate the CFPA's prohibition on deceptive or 
abusive acts or practices. 12 U.S.C. 5531, 5536. See generally 
``Statement of Policy Regarding Prohibition on Abusive Acts or 
Practices,'' 88 FR 21883 (Apr. 12, 2023). This conduct may also 
violate other applicable laws, including State law. See, e.g., 
Jimenez v. T.D. Bank, N.A., 2021 WL 4398754, at *16 (D.N.J., 2021) 
(private plaintiff stated a claim for unfair practices under 
Massachusetts law where bank allegedly ``either opened a new account 
in her name or reopened a previously closed account, without her 
knowledge and without seeking or obtaining her authorization'' and 
then charged her fees).
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    Under the CFPA, an act or practice is unfair when it causes or is 
likely to cause consumers substantial injury that is not reasonably 
avoidable by consumers and the injury is not outweighed by 
countervailing benefits to consumers or to competition.\3\
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    \3\ 12 U.S.C. 5531(c)(1).
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    Unilaterally reopening a closed deposit account to process a debit 
or deposit may cause substantial injury to consumers.
    Substantial injury includes monetary harm, such as fees paid by 
consumers due to the unfair practice. Actual injury is not required; 
significant risk of concrete harm is sufficient.\4\ Substantial injury 
can occur when a small amount of harm is imposed on a significant 
number of consumers.\5\
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    \4\ See, e.g., F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 
246 (3d Cir. 2015) (interpreting ``substantial injury'' under the 
Federal Trade Commission Act (FTC Act), 15 U.S.C. 45(n), which uses 
the same language as the CFPA, 12 U.S.C. 5531(c)(1)).
    \5\ See, e.g., Orkin Exterminating Co. v. Fed. Trade Comm'n, 849 
F.2d 1354, 1365 (11th Cir. 1988) (interpreting ``substantial 
injury'' under the FTC Act).
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    After a consumer has closed a deposit account, a financial 
institution's act of unilaterally reopening that account upon receiving 
a debit or deposit may cause monetary harm to the consumer. Financial 
institutions frequently charge fees after they reopen an account. For 
example, consumers may incur penalty

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fees \6\ when an account that they closed is reopened by the financial 
institution after receiving a debit or deposit. Since financial 
institutions typically require a zero balance to close an account, 
reopening a closed account to process a debit is likely to result in 
consumers incurring penalty fees.
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    \6\ In these circumstances, because there generally are no 
benefits to charging fees on reopened accounts (see countervailing 
benefits discussion below), such fees generally would function as 
penalty fees which cause substantial injury.
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    In addition to fees, reopening a consumer's account to accept a 
deposit increases the risk that an unauthorized third party may gain 
access to the consumer's funds (e.g., a person with the consumer's 
account information who pulls funds from the account without the 
consumer's authorization).
    And if reopening the account overdraws the account and the consumer 
does not repay the amount owed quickly, the financial institution may 
furnish negative information to consumer reporting companies, which may 
make it harder for the consumer to obtain a deposit account in the 
future. Because reopening accounts that the consumer closed gives rise 
to these risks of monetary harm, this practice may cause substantial 
injury.
    Consumers likely cannot reasonably avoid this injury.
    An injury is not reasonably avoidable by consumers when consumers 
cannot make informed decisions or take action to avoid that injury. 
Injury that occurs without a consumer's knowledge or consent, when 
consumers cannot reasonably anticipate the injury, or when there is no 
way to avoid the injury even if anticipated, is not reasonably 
avoidable.\7\
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    \7\ See FTC v. Neovi, Inc., 604 F.3d 1150, 1158 (9th Cir. 2010) 
(interpreting whether consumer's injuries were reasonably avoidable 
under the FTC Act); Orkin Exterminating Co., 849 F.2d at 1365-66 
(same); American Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 976 (D.C. 
Cir. 1985) (same).
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    Consumers often cannot reasonably avoid the risk of substantial 
injury caused by financial institutions' practice of unilaterally 
reopening accounts that consumers previously closed because they cannot 
control one or more of the following circumstances: a third party's 
attempt to debit or deposit money, the process and timing of account 
closure, or the terms of the deposit account agreements.
    First, without the consumer's consent or knowledge, a third party 
may attempt to debit from or deposit to the closed account, prompting 
their previous financial institution to reopen the account. For 
example, a payroll provider may inadvertently send a consumer's 
paycheck to the closed account, even if the consumer informed the 
payroll provider about the account closure and directed them to deposit 
their paycheck in a new account. Similarly, a merchant may take an 
extended amount of time to process a refund to a customer's account for 
a returned item or may use the wrong account information to process a 
recurring monthly payment. Consumers cannot reasonably avoid these 
types of injuries resulting from these types of actions by a third 
party.
    Second, financial institutions may require consumers to complete a 
multi-step process before closing a deposit account, which can involve 
completing paperwork in person, returning or destroying any access 
devices, bringing the balance to zero, and fulfilling waiting periods. 
When consumers begin this process, they likely will not know exactly 
when the financial institution will fulfill their request to close the 
account. Consumers, for example, do not control waiting periods or the 
length of time it takes a financial institution to settle transactions 
to bring a balance to zero. Consumers' lack of control over the 
financial institution's account closure process and timeline may make 
it more difficult for them to prevent debits and credits that will 
reopen the account, since the account may close earlier than they 
expect.
    Finally, consumers may not have a reasonable alternative to 
financial institutions that permit this practice because most deposit 
contracts either permit or are silent on this practice. Further, to the 
extent that deposit account agreements allow or disclose such 
practices, these agreements typically are standard-form contracts 
prepared by financial institutions that specify a fixed set of 
terms.\8\ Consumers have no ability to negotiate the terms of these 
agreements. Instead, financial institutions present these contracts to 
consumers on a take-or-leave-it basis. Thus, even if deposit account 
agreements reference this practice, consumers also have limited ability 
to negotiate the terms of such contracts, and consumers can incur 
injuries in circumstances beyond their control. Moreover, even if the 
financial institution informs the consumer at the time that the account 
is closed that the institution may reopen the account, pursuant to the 
account agreement, the consumer will still generally lack the practical 
ability to control whether the account will be reopened and to avoid 
fees and other monetary harms.
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    \8\ See American Fin. Servs. Ass'n, 767 F.2d at 977 (concluding 
that certain practices were unfair even though disclosed and agreed 
to in agreements because consumers had no ability to negotiate the 
terms of form contracts).
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    This injury is likely not outweighed by countervailing benefits to 
consumers or competition.
    Reopening a closed account does not appear to provide any 
meaningful benefits to consumers or competition. To the extent 
financial institutions are concerned about controlling their own costs 
to remain competitive, they have alternatives to reopening a closed 
account upon receiving a debit or deposit that could minimize their 
expenses and liability. For example, the financial institution could 
decline any transactions that they receive for accounts consumers 
previously closed. In addition to minimizing the institution's costs, 
not reopening these accounts may protect the financial institution 
against the use of closed accounts to commit fraud.
    Moreover, consumers do not generally benefit when a financial 
institution unilaterally reopens an account that consumers previously 
closed. Since financial institutions typically require consumers to 
bring the account balance to zero before closing an account, reopening 
an account in response to a debit will likely result in penalty fees 
rather than payment of an amount owed by the consumer. While consumers 
might potentially benefit in some instances where their accounts are 
reopened to receive deposits, which then become available to them, that 
benefit does not outweigh the injuries that can be caused by unilateral 
account reopening. Such benefits are unlikely to be significant because 
consumers can generally receive the same deposits in another way that 
they would prefer (such as through a new account that they opened to 
replace the closed account). And those uncertain benefits are 
outweighed by the risk that deposited funds will be depleted before the 
consumer can access (or is even aware of) the funds (e.g., through 
maintenance or other fees assessed by the financial institution as a 
result of the reopening or debits from the reopened account by third 
parties).
    Further, not reopening accounts may benefit consumers in certain 
circumstances. For example, declining a deposit submitted to a closed 
account alerts the fund's sender that they have incorrect account 
information and may encourage the sender to contact the consumer to 
obtain updated account information. Declining a debit also provides an 
opportunity for the sender of the debit to inform the consumer of any 
erroneous account information, providing the consumer with the 
opportunity to make the payment with

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a current account or through another process.
    For these reasons, government enforcers should consider whether a 
financial institution has violated the prohibition against unfair acts 
or practices in the CFPA if they discover that a financial institution 
has unilaterally reopened accounts that consumers previously

About Consumer Financial Protection Circulars

    Consumer Financial Protection Circulars are issued to all parties 
with authority to enforce Federal consumer financial law. The CFPB is 
the principal Federal regulator responsible for administering Federal 
consumer financial law, see 12 U.S.C. 5511, including the Consumer 
Financial Protection Act's prohibition on unfair, deceptive, and 
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other 
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws 
are also enforced by State attorneys general and State regulators, 12 
U.S.C. 5552, and prudential regulators including the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, and the National 
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2) 
(exclusive enforcement authority for banks and credit unions with $10 
billion or less in assets). Some Federal consumer financial laws are 
also enforceable by other Federal agencies, including the Department of 
Justice and the Federal Trade Commission, the Farm Credit 
Administration, the Department of Transportation, and the Department of 
Agriculture. In addition, some of these laws provide for private 
enforcement.
    Consumer Financial Protection Circulars are intended to promote 
consistency in approach across the various enforcement agencies and 
parties, pursuant to the CFPB's statutory objective to ensure Federal 
consumer financial law is enforced consistently. 12 U.S.C. 5511(b)(4).
    Consumer Financial Protection Circulars are also intended to 
provide transparency to partner agencies regarding the CFPB's intended 
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C. 
5552(b) (consultation with CFPB by State attorneys general and 
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB 
and other agencies).
    Consumer Financial Protection Circulars are general statements of 
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They 
provide background information about applicable law, articulate 
considerations relevant to the Bureau's exercise of its authorities, 
and, in the interest of maintaining consistency, advise other parties 
with authority to enforce Federal consumer financial law. They do not 
restrict the Bureau's exercise of its authorities, impose any legal 
requirements on external parties, or create or confer any rights on 
external parties that could be enforceable in any administrative or 
civil proceeding. The CFPB Director is instructing CFPB staff as 
described herein, and the CFPB will then make final decisions on 
individual matters based on an assessment of the factual record, 
applicable law, and factors relevant to prosecutorial discretion.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-10982 Filed 5-23-23; 8:45 am]
BILLING CODE 4810-AM-P