[Federal Register Volume 88, Number 199 (Tuesday, October 17, 2023)]
[Notices]
[Pages 71534-71539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22869]


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CONSUMER FINANCIAL PROTECTION BUREAU


Supervisory Highlights Junk Fees Update Special Edition, Issue 
31, Fall 2023

AGENCY: Consumer Financial Protection Bureau.

ACTION: Supervisory Highlights.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is 
issuing its thirty first edition of Supervisory Highlights.

DATES: The findings included in this report cover examinations in the 
areas of deposits, auto servicing, and remittances that generally were 
completed between February 2023 and August 2023. The report also 
describes risks identified in connection with payment platforms that 
parents, guardians, and students use to pay for school lunches.

FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at 
(202) 435-7449. If you require this document in an alternative 
electronic format, please contact [email protected].

SUPPLEMENTARY INFORMATION:

1. Introduction

    As part of its emphasis on fair competition, the Consumer Financial 
Protection Bureau (CFPB) has launched an initiative, consistent with 
its legal authority, to scrutinize junk fees charged by banks and 
financial companies. Junk fees are typically not subjected to the 
normal forces of competition, leading to excessive costs for services 
that a consumer may not even want. For example, certain banks and 
financial companies might hide these unavoidable or surprise charges or 
disclose them only at a later stage in the consumer's purchasing 
process, if at all.
    The CFPB has observed that supervised institutions have started to 
compete more when it comes to fees. In recent years, multiple banks 
have announced they were eliminating overdraft fees or otherwise 
updating their policies to be more consumer friendly.\1\ And many have 
announced that they are eliminating non-sufficient fund (NSF) fees on 
consumer deposit accounts.\2\
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    \1\ Banks' Overdraft/NSF Fee Revenues Evolve Along With Their 
Policies, (July 20, 2023), available at: https://www.consumerfinance.gov/about-us/blog/banks-overdraft-nsf-fee-revenues-evolve-along-with-their-policies/. Some banks have 
announced significant changes while others have made smaller or no 
changes.
    \2\ Id.
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    Supervision continues to focus significant resources on identifying 
and eliminating junk fees charged by supervised institutions. 
Significantly, financial institutions are refunding over $120 million 
to consumers for unanticipated overdraft fees and unfair NSF fees. This 
special edition of Supervisory Highlights updates the public on 
supervisory work completed since the CFPB published the March 2023 
Supervisory Highlights Junk Fees Special Edition. In total, for the 
topics covered in this edition, Supervision's work has resulted in 
institutions refunding over $140 million to consumers.
    The findings included in this report cover examinations in the 
areas of deposits, auto servicing, and remittances that generally were 
completed between February 2023 and August 2023.\3\ The report also 
describes risks identified in connection with payment platforms that 
parents, guardians, and students use to pay for school lunches. 
Additionally, consistent with the statutory requirement for Supervision 
to identify and consider ``risks to consumers'' throughout its 
supervisory program, Supervision has obtained data about certain 
deposit account fee practices and is sharing key data points that shed 
light on risks to consumers. To maintain the anonymity of the 
supervised institutions discussed in Supervisory Highlights, references 
to institutions generally are in the plural and related findings may 
pertain to one or more institutions.
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    \3\ If a supervisory matter is referred to the Office of 
Enforcement, Enforcement may cite additional violations based on 
these facts or uncover additional information that could impact the 
conclusion as to what violations may exist.
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    We invite readers with questions or comments about Supervisory 
Highlights to contact us at [email protected].

2. Supervisory Observations

2.1 Deposits

    In recent examinations of depository institutions and service 
providers, Supervision has reviewed certain fees related to deposit 
accounts to assess whether supervised entities have engaged in any 
unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by 
the Consumer Financial Protection Act of 2010 (CFPA).\4\ Examiners have 
focused on NSF and overdraft fees in particular and have reviewed 
statement fees and surprise depositor fees as well. Examiners also have 
engaged in follow-up work regarding pandemic relief benefits.
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    \4\ 12 U.S.C. 5531(c), 5536.
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2.1.1 Assessing Multiple NSF Fees for the Same Transaction

    Supervision continued examinations of institutions to review for 
UDAAPs in connection with charging consumers NSF fees, especially with 
respect to ``re-presentments.'' \5\ A re-presentment occurs when, after 
declining a transaction because of insufficient funds and assessing an 
NSF fee for the transaction, the consumer's account-holding institution 
returns the transaction to the merchant's depository institution, and 
the merchant presents the same transaction to the consumer's account-
holding institution for payment again. In some instances, when the 
consumer's account remains insufficient to pay for the transaction upon 
re-presentment, the consumer's account-holding institution again 
returns the transaction to the merchant and assesses another NSF fee 
for the transaction, without providing consumers a reasonable 
opportunity to prevent another fee after the first failed presentment 
attempt. Absent restrictions on the assessment of NSF fees by the 
consumer's account-holding institution, this cycle can occur multiple 
times, and consumers may be charged multiple fees for a single 
transaction.
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    \5\ Some depository institutions charge a NSF fee when a 
consumer pays for a transaction with a check or an ACH transfer and 
the transaction is presented for payment, but there is not a 
sufficient balance in the consumer's account to cover the 
transaction.
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Core Processor Practices
    Core processors provide critical deposit, payment, and data 
processing services to many supervised institutions, and the system 
functionality that these entities develop drives many fee practices, 
including NSF fee practices. Supervision has examined core processors 
in their capacity as service providers to covered persons providing 
deposit services.
    Examiners concluded that, in the offering and providing of core 
service platforms, core processors engaged in an unfair act or practice 
by contributing to the assessment of unfair NSF fees on re-presented 
items. An act or practice is

[[Page 71535]]

unfair when: (1) it causes or is likely to cause substantial injury to 
consumers; (2) the injury is not reasonably avoidable by consumers; and 
(3) the injury is not outweighed by countervailing benefits to 
consumers or to competition.\6\ Consumers incurred substantial injury 
in the form of the relevant re-presentment NSF fees. Consumers were 
also at increased risk of incurring additional fees on subsequent 
transactions caused by the re-presentment NSF fees, which lowered 
consumers' account balances. Injurious fees were foreseeable in light 
of the system limitations, as the core processor platforms did not 
allow financial institutions to refrain from charging more than one NSF 
fee per item without discontinuing NSF fees altogether or manually 
waiving individual fees. These fees were not reasonably avoidable by 
consumers, where consumers did not have a meaningful opportunity to 
prevent another fee after the first failed representment attempt. The 
consumer injury at issue was not outweighed by countervailing benefits 
to consumers or competition.
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    \6\ 12 U.S.C. 5531(c), 5536.
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    To address these findings, the core processors enhanced the systems 
they provide to financial institutions to facilitate their 
implementation of policies to eliminate NSF re-presentment fees. 
Additionally, Supervision intends to review the practices of financial 
institutions seeking payment from the consumer's financial institution, 
often called Originating Depository Financial Institutions, to ensure 
that represented transactions are coded properly to enable systems to 
identify the relevant transactions efficiently as well as refrain from 
charging NSF fees on those transactions.
Supervised Institutions' Practices
    In other examinations, Supervision found that financial 
institutions engaged in unfair acts or practices by charging consumers 
re-presentment NSF fees without affording the consumer a meaningful 
opportunity to prevent another fee after the first failed representment 
attempt.\7\ The assessment of re-presentment NSF fees caused 
substantial monetary injury to consumers, totaling tens of millions of 
dollars that will be refunded to consumers because of examinations 
during this time period. These injuries were not reasonably avoidable 
by consumers, regardless of disclosures in account-opening documents, 
because consumers did not have a reasonable opportunity to prevent 
another fee after the first failed presentment attempt. And the 
injuries were not outweighed by countervailing benefits to consumers or 
competition.
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    \7\ Supervision's work is consistent with the CFPB's public 
action against Bank of America, N.A. See CFPB Consent Order 2023-
CFPB-0006, In the Matter of Bank of America, N.A. (July 11, 2023), 
available at: https://www.consumerfinance.gov/enforcement/actions/bank-of-america-n-a-fees/.
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    Consistent with the CFPB's longtime position regarding responsible 
business conduct, institutions proactively developed plans to remediate 
consumers for assessed re-presentment NSF fees.\8\ However, some 
financial institutions used incomplete reports that only captured 
certain re-presentment NSF fees charged to consumers. Examiners found 
that these reports captured consumer accounts that were charged NSF 
fees on checks only, or on both checks and ACH transactions. Yet they 
omitted consumer accounts that were assessed NSF fees solely on ACH 
transactions. After examiners identified this issue, institutions 
reviewed their remediation methodologies to ensure coverage of both ACH 
and check re-presentments.
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    \8\ Responsible Business Conduct: Self-Assessing, Self-
Reporting, Remediating, and Cooperating, (March 6, 2020), available 
at: https://www.consumerfinance.gov/compliance/supervisory-guidance/bulletin-responsible-business-conduct/.
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    In total, institutions are refunding over $22 million to consumers 
in response to Supervision directives since CFPB initiated this set of 
work in 2022. Additionally, the vast majority of institutions reported 
plans to stop charging NSF fees altogether.

2.1.2 Unfair Unanticipated Overdraft Fees

    Supervision continued to cite unfair acts or practices at 
institutions that charged consumers for unfair unanticipated overdraft 
fees, such as Authorize-Positive Settle-Negative (APSN) overdraft fees, 
during this time period. APSN overdraft fees occur when financial 
institutions assess overdraft fees for debit card or ATM transactions 
where the consumer had a sufficient available balance at the time the 
consumer authorized the transaction, but given the delay between 
authorization and settlement the consumer's account balance is 
insufficient at the time of settlement. This change in balance can 
occur for many reasons, such as intervening authorizations resulting in 
holds, settlement of other transactions, timing of presentment of the 
transaction for settlement, and other complex practices relating to 
transaction processing order. Supervision's recent matters have built 
on work described in Winter 2023 Supervisory Highlights, and the CFPB 
previously discussed this practice in Consumer Financial Protection 
Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices.\9\
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    \9\ Supervisory Highlights: Junk Fees Special Edition, Issue 29, 
3-6 (March 2023) available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-junk-fees-special-edition-issue-29-winter-2023/; Consumer Financial Protection 
Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices, 
at 8-12 (Oct. 26, 2022) available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/.
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    Across its examinations, Supervision has identified tens of 
millions of dollars in injury to thousands of consumers that occurred 
whether supervised institutions used the consumer's available or ledger 
balance for fee decisioning. Consumers could not reasonably avoid the 
substantial injury, irrespective of account opening disclosures. The 
consumer injury was not outweighed by countervailing benefits to 
consumers or competition. To remedy the violation, these institutions 
ceased charging APSN overdraft fees, and will conduct a lookback and 
issue remediation to injured consumers.
    In total, financial institutions are refunding over $98 million to 
consumers since this work began in 2022. In recent examinations, and 
consistent with Supervision's earlier work, supervised institutions 
that had reported to examiners that they engaged in APSN overdraft fee 
practices now report that they will stop doing so.

2.1.3 Supervisory Data Requests on Overdraft, NSF, and Other Overdraft-
Related Fees

    As part of the CFPB's ongoing supervisory monitoring related to 
overdraft practices, Supervision obtained data from several 
institutions related to fees assessed over the course of 2022, 
including per item overdraft and NSF fees, sustained overdraft fees, 
and transfer fees (collectively, ``overdraft-related fees'').\10\ 
Supervision also obtained account-level and transaction-level data from 
several institutions regarding overdraft fees assessed over a one-month 
period on non-recurring debit card and ATM transactions.\11\ Some of 
the key observations gleaned from the data are discussed below. Please 
note that the

[[Page 71536]]

discussion below does not present all of the CFPB's observations or 
data obtained and that the CFPB's analysis of data provided by 
institutions is ongoing.
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    \10\ See 12 U.S.C. 5515(b)(1).
    \11\ Neither the account-level nor the transaction-level data 
contain any directly-identifying personal information. Because the 
data used in this analysis are Confidential Supervisory Information, 
this discussion only presents results that are aggregated and does 
not identify specific institutions.
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Overdraft Coverage and Fee Amounts per Overdraft Transaction
    During the time periods reviewed, the relevant institutions charged 
per-item overdraft fees that ranged from $15 per item to $36 per item. 
The amount of overdraft coverage provided for consumer transactions on 
which these fees were charged often was disproportionately small. For 
example, in these data sets, the median amount of overdraft coverage 
extended on one-time debit card and ATM transactions ranged from $14 to 
$30. In fact, the percentage of transactions for which the amount of 
overdraft coverage provided was less than the relevant per-item 
overdraft fee ranged from 32% to 74% across institutions.
Incident and Distribution of Overdraft, NSF, and Other Overdraft-
Related Fees
    Supervision obtained institution-level data segmented by certain 
account characteristics, including: opt-in status,\12\ i.e. accounts 
opted-in to overdraft services for one-time debit card and ATM 
transactions (``opted-in accounts'') versus accounts not opted-in to 
such overdraft services (``not opted-in accounts''), and average 
account balance, i.e. accounts with an average balance at or less than 
$500 (``lower balance accounts'') versus accounts with an average 
balance greater than $500 (``higher balance accounts''). Across all 
institutions monitored, most accountholders do not incur overdraft-
related fees. This data set also showed that overdraft-related fees 
constituted the majority of the total deposit account fees that 
consumers incurred and an even greater proportion of the total fees 
assessed to lower balance accounts and opted-in accounts.
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    \12\ Institutions are prohibited from charging a fee for paying 
non-recurring debit card and ATM transactions into overdraft unless 
a consumer affirmatively opts-in to overdraft coverage for these 
transactions. See 12 CFR 1005.17(b)(1). Institutions are not 
expressly prohibited from charging an NSF fee on such transactions, 
however, the Federal Reserve Board signaled that such fees may 
violate the FTC Act. See 74 FR 59033, 59041 (Nov. 17, 2009). This 
opt-in requirement does not extend to other transaction types (e.g., 
ACH and check transactions) and thus non-opted in accounts may be 
assessed overdraft fees for such transactions.
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    In 2022, in this data set, overdraft and NSF fees comprised 53% of 
all fees that the institutions charged to consumer checking accounts 
and nearly three-quarters of all fees charged to lower balance accounts 
and opted-in accounts. Not surprisingly then, while accountholders 
overall each paid approximately $65 per year in overdraft and NSF fees 
on average, opted-in accounts and lower balance accountholders paid 
over $165 and $220 in overdraft and NSF fees on average per year, 
respectively. A relatively small fraction of bank customers had a lower 
average balance but paid the majority of overdraft and NSF fees which 
is consistent with findings in prior research conducted by the CFPB. 
Indeed, across all institutions in aggregate, one-fifth of accounts 
were lower-balance accounts, but these accounts paid 68% of per-item 
overdraft fees assessed and 77% of the per-item NSF fees assessed. In 
fact, for at least one institution, over half of per-item overdraft 
fees assessed and over one-third of per-item NSF fees assessed were 
charged to lower balance, opted-in accounts even though only five 
percent of the institution's accounts fell into this category.
    Data on the frequency of overdraft transactions and fees showed 
that the number of overdraft transactions and fees varies substantially 
with opt-in status. Accounts that overdraft most frequently (12 or more 
overdraft fees per year) were nearly five times as prevalent among 
opted-in accounts compared to not opted-in accounts.
Account Closure and Charge-Offs Attributable to Overdraft Transactions 
and Overdraft-Related Fees
    Supervision also obtained data on account closure attributable to 
unpaid negative balances and overdraft transactions and the amount of 
charged-off negative balances attributable to overdraft transactions 
(excluding fees). With respect to account closure, Supervision found 
that, across all institutions, most accounts were closed involuntarily 
and half of such accounts were closed due to an unpaid negative balance 
attributable to overdraft transactions and overdraft-related fees.
    In aggregate, losses to institutions in the form of charge-offs 
were evenly split between opted in accounts and not opted in accounts. 
Although overdraft transactions initiated by lower balance accounts 
were more likely to be charged-off, the average amount charged-off per 
lower balance account was roughly equal to the amount charged-off per 
higher balance account and was actually lower at some institutions. 
Notably, overdraft-related fees themselves generally constituted one-
third of the total amount of negative balances charged-off. In fact, 
overdraft-related fees constituted as much as two-thirds of the total 
amount of all overdraft charge-offs by at least one institution.

2.1.4 Unfair Statement Fees

    When supervised institutions send account statements to customers 
that provide information about their deposit accounts during the month, 
they generally deliver these statements to consumers in paper form, 
through the U.S. mail, unless consumers elect to receive the statements 
in verified and secure electronic form, whether by email or through the 
institution's website or its mobile application.
    In recent examinations, Supervision observed that institutions 
charged fees for the printing and delivery of paper statements, 
including additional fees when they mailed a statement that was 
returned undelivered. Supervision found that, in certain instances, 
institutions did not print or attempt to deliver paper statements but 
continued to assess paper statement fees and returned mail fees each 
month.
    Supervision found that institutions engaged in an unfair act or 
practice by assessing paper statement fees and returned mail fees for 
paper statements they did not attempt to print and deliver. Assessing 
such delivery-related statement fees for undelivered statements caused 
substantial injury to consumers. Indeed, in one instance, a senior 
citizen discovered that her account was almost entirely depleted 
because an account statement had been returned undelivered five years 
prior and the institution had been assessing statement fees each month 
since. Consumers could not reasonably avoid this injury because they 
had no reason to anticipate that such fees would be assessed. The 
injury was also not outweighed by countervailing benefits to consumers 
or competition because assessing delivery-related fees for undelivered 
statements provides no benefit to consumers and does not actually 
compensate institutions for any costs incurred.
    In response to these findings, the institutions stopped assessing 
paper statements and returned mail fees for paper statements they did 
not attempt to deliver and will refund the millions of dollars in such 
fees that were charged to hundreds of thousands of consumers.

2.1.5 Surprise Depositor Fees

    Surprise depositor fees, also known as returned deposit item fees, 
are fees assessed to consumers when an institution returns as 
unprocessed a check that the consumer attempted to deposit into his or 
her checking account. An institution might return a check for several 
reasons, including

[[Page 71537]]

insufficient funds in the originator's account, a stop payment order, 
or problems with the information on the check.
    In October 2022, the CFPB issued a compliance bulletin stating that 
it is likely an unfair act or practice for an institution to have a 
blanket policy of charging return deposit item fees anytime that a 
check is returned unpaid, irrespective of the circumstances or patterns 
of behavior on the account.\13\ The CFPB stated that these fees cause 
substantial monetary injury for each returned item, which consumers 
likely cannot reasonably avoid because they lack information about and 
control over whether a check will clear.\14\ And it may be difficult to 
show that this injury from blanket return deposit item policies is 
outweighed by countervailing benefits to consumers or to 
competition.\15\
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    \13\ Consumer Financial Protection Bulletin 2022-06, Unfair 
Returned Deposited Item Fee Assessment Practices (Oct. 26, 2022), 
available at: https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-06-unfair-returned-deposited-item-fee-assessment-practices/.
    \14\ Id. at 3-4.
    \15\ Id. at 5-6.
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    In recent examinations, Supervision has evaluated the returned 
deposit item fee practices at a number of institutions. Most of the 
examined institutions have advised the CFPB that they have eliminated 
returned deposit item fees entirely. Others have stated that they are 
in the process of doing so. As previewed in the October 2022 bulletin, 
Supervision has not sought to obtain monetary relief for return deposit 
item fees assessed prior to November 1, 2023. But Supervision will 
continue to monitor the relevant practices for compliance with the law 
and may direct remediation from institutions that continue charging 
unfair returned deposit item fees.\16\
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    \16\ Id. at 3 n.1.
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2.1.6 Treatment of Pandemic Relief Benefits

    As described in past editions of Supervisory Highlights, 
Supervision conducted examination work to evaluate how financial 
institutions handled pandemic relief benefits deposited into consumer 
accounts.\17\ Specifically, the CFPB performed a broad assessment 
centered on whether consumers may have lost access to pandemic relief 
benefits, namely Economic Impact Payments and unemployment insurance 
benefits, as a result of financial institutions' garnishment or setoff 
practices.\18\ Further follow-up reviews identified many supervised 
institutions that risked committing an unfair act or practice in 
violation of the CFPA in connection with their treatment of pandemic 
relief benefits which resulted in consumers being charged improper 
fees.\19\
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    \17\ Supervisory Highlights, Issue 28 (Fall 2022), available at: 
https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/. Supervisory Highlights, 
Issue 23 (Winter 2021), available at: cfpb_supervisory-
highlights_issue-23_2021-01.pdf (consumerfinance.gov).
    \18\ Supervisory Highlights, Issue 23 (Winter 2021), available 
at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-covid-19-prioritized-assessments-special-edition-issue-23/.
    \19\ Supervisory Highlights, Issue 28 (Fall 2022), available at 
https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/.
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    In response to these findings, the institutions (1) refunded 
protected Economic Impact Payments improperly taken from consumers to 
set off fees or amounts owed to the institution; (2) refunded 
garnishment-related fees assessed to consumers for improper garnishment 
of Economic Impact Payments; and (3) reviewed, updated, and implemented 
policies and procedures to ensure the institution complies with 
applicable State and territorial protections regarding its setoff and 
garnishment practices.
    To date, Supervision has identified over $1 million in consumer 
injury in response to these examination findings, with institutions 
providing redress to over 6,000 consumers. Thus far, supervised 
institutions have provided redress of approximately $685,000 to 
consumers for improper setoff of Economic Impact Payments and 
approximately $315,000 for improper garnishment-related fees. Most 
supervised institutions have reported making substantial changes to 
their policies and procedures to prevent this type of consumer injury 
in the future.

2.2 Auto Servicing

    Examiners also reviewed fee practices in connection with auto 
loans. Through this work, Supervision continues to identify unfair acts 
or practices related to auto servicers' handling of refunds of add-on 
products after loans terminate early. Specifically, some servicers 
failed to ensure consumers received refunds, while others did so but 
miscalculated the refund amounts.
    When consumers purchase an automobile, auto dealers and finance 
companies offer optional, add-on products that consumers can purchase. 
Auto dealers and finance companies often charge consumers for the 
entire cost of any add-on products at origination, adding the cost of 
the add-on product as a lump sum to the total amount financed. As a 
result, consumers typically make payments on these products throughout 
the loan term, even if the product expires earlier.

2.2.1 Overcharging for Add-On Products After Early Loan Termination

    Examiners have continued to review servicer practices related to 
add-on product charges where loans terminated early through payoff or 
repossession.\20\ When loans terminate early, certain products no 
longer offer any possible benefit to consumers; whether a product 
offers a benefit depends on the type of product and reason for early 
termination. For example, many vehicle service contracts continue to 
provide possible benefits to consumers after early payoff but not after 
repossession, while a credit product (such as Guaranteed Asset 
Protection (GAP) or credit-life insurance) will not offer any possible 
benefits after either early payoff or repossession.
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    \20\ The CFPB previously discussed similar issues with add-on 
product refunds after repossession and early payoff in Supervisory 
Highlights, Issue 26, Spring 2022, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-26-spring-2022/; Consumer Financial Protection 
Bureau (consumerfinance.gov) and Supervisory Highlights, Issue 28, 
Fall 2023, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-28-fall-2022/.
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    Examiners found auto servicers engaged in unfair acts or practices 
because consumers suffered substantial injury when servicers failed to 
ensure they received refunds for add-on products following early loan 
termination; consumers were essentially required to pay for services 
they could no longer use, as the relevant products (including vehicle 
service contracts, GAP, or credit-life insurance) terminated either 
when the loan contract was terminated or provided no possible benefits 
after the consumer lost use of the vehicle. Consumers could not 
reasonably avoid the injury because they had no control over the 
servicers' refund processing actions. When servicers present consumers 
with payoff amounts, deficiency balances, or refunds, consumers may 
have no reason to know that the amounts include unearned add-on product 
costs. And reasonable consumers might not apply for refunds themselves 
because they may be unaware that the contract provided that they could 
do so. Examiners concluded that the injury was not outweighed by any 
countervailing benefits to consumers or competition.
    In response to these findings, servicers are remediating impacted 
consumers more than $20 million and

[[Page 71538]]

implementing processes to ensure consumers receive refunds for add-on 
products that no longer offer any possible benefit to consumers.

2.2.2 Miscalculating Refunds for Add-On Products After Early Loan 
Termination

    Examiners also have continued to identify problems with the 
calculation of unearned fee amounts after loan termination.\21\ 
Examiners found that servicers engaged in unfair acts or practices when 
they used miscalculated add-on product refund amounts after loans 
terminated early. These servicers had a policy to obtain add-on product 
refunds and relied on service providers to calculate the refund 
amounts. The service providers miscalculated the refunds due, either 
because they used the wrong amount for the price of the add-on product 
or because they deducted fees (such as cancellation fees) that were not 
authorized under the add-on product contract; the servicers then used 
these miscalculated refund amounts.
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    \21\ The CFPB previously discussed similar issues with add-on 
product refund calculations in Supervisory Highlights, Issue 18, 
Winter 2019, available at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-winter-2019/.
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    Examiners found that servicers engaged in an unfair act or practice 
when they used miscalculated add-on product refund amounts after loans 
terminated early. Using miscalculated refund amounts caused, or was 
likely to cause, substantial injury because servicers either 
communicated inaccurately higher deficiency balances or provided 
smaller refunds than warranted after early loan termination. Consumers 
could not reasonably avoid the injury because they were not involved in 
the servicers' calculation process, and it is reasonable for consumers 
to assume that the calculations are accurate. And the injury was not 
outweighed by countervailing benefits to consumers or competition.
    In response to these findings, servicers are remediating impacted 
consumers and improving monitoring of service providers.

2.3 Remittances

    Examiners also review activities of remittance transfer providers 
to ensure that fees are disclosed and charged consistent with subpart B 
of Regulation E (the Remittance Rule). These examinations found that 
certain providers have violated regulations by failing to appropriately 
disclose fees or failing to refund fees, in certain circumstances, 
because of an error.
    The Remittance Rule requires that remittance transfer providers 
disclose any transfer fees imposed by the provider.\22\ Recent 
examinations have found that remittance providers have failed to 
disclose fees imposed by their agents at the time of the transfer, in 
violation of 12 CFR 1005.31(b)(1)(ii). This reduced the total wire 
amount the recipients received as compared to the amount that had been 
disclosed. Additionally, in the case of an error for failure to make 
funds available to a designated recipient by the date of availability, 
the Remittance Rule states that if a remittance transfer provider 
determines an error occurred, the provider shall refund to the sender 
any fees imposed, and to the extent not prohibited by law, taxes 
collected on the remittance transfer.\23\ Examiners found that certain 
providers failed to correct errors by refunding to the sender fees 
imposed on the remittance transfer, within the specified time frame, 
where the recipients did not receive the transfers by the promised 
date, in violation of 12 CFR 1005.33(c)(2)(ii)(B). In response to these 
findings, supervised institutions implemented corrective action to 
prevent future violations and provided remediation to consumers charged 
fees in violation of regulatory requirements.
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    \22\ 12 CFR 1005.31(b)(1)(ii). As stated in comment 31(b)(1)-
1(ii), fees include ``any fees imposed by an agent of the provider 
at the time of the transfer.''
    \23\ 12 CFR 1005.33(c)(2)(ii)(B).
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3. Consumer Risk-Payment Processing

3.1 Payment Platforms for Student Meal Accounts

    Some kindergarten through 12th grade school systems contract with 
companies that run online platforms that allow parents or guardians to 
manage their students' meal accounts. In most cases, families using 
these online platforms pay a per-transaction fee to add funds to their 
meal accounts. Any school district that participates in Federal school 
meal programs and contracts with fee-based online platforms must also 
provide free options for adding money to student meal accounts. As a 
result, families can avoid the transaction fee by adding funds using 
one of these alternative methods, such as making payments directly to 
the school or district.
    The CFPB learned of covered persons that maintained these online 
payment platforms where consumers may have paid fees that they would 
not have paid if they had known of the existence of free options for 
adding meal funds to the student's account. Because consumers did not 
know their options, they incurred transaction fees that they could have 
avoided. As the fees were assessed on a per-transaction basis, the fees 
likely disproportionately affected lower-income families that must add 
smaller amounts more often, thereby incurring more transaction fees 
than higher-income users that can deposit larger amounts less 
frequently.
    The CFPB notified the covered persons that these practices may not 
comply with consumer financial protection laws.

4. Supervisory Program Developments

4.1 Recent CFPB Supervision Program Developments

    Set forth below is a recap of the most salient supervision program 
developments that implicate junk fees. More information including 
circulars, bulletins, and advisory opinions about the CFPB's junk fee 
initiative can be found at: https://www.consumerfinance.gov/rules-policy/junk-fees/.

4.1.1 CFPB Issued a Circular on Unanticipated Overdraft Fee Assessment 
Practices

    On October 26, 2022, the CFPB issued guidance indicating that 
overdraft fees may constitute an unfair act or practice under the CFPA, 
even if the entity complies with the Truth in Lending Act (TILA) and 
Regulation Z, and the Electronic Fund Transfer Act (EFTA) and 
Regulation E.\24\ As detailed in the circular, when supervised 
institutions charge surprise overdraft fees, sometimes as much as $36, 
they may be breaking the law. The circular provides some examples of 
potentially unlawful surprise overdraft fees, including charging fees 
on purchases made with a positive balance. These overdraft fees occur 
when an institution displays that a customer has sufficient available 
funds to complete a debit card purchase at the time of the transaction, 
but the consumer is later charged an overdraft fee. Often, the 
institution relies on complex back-office practices to justify charging 
the fee. For instance, after the institution allows one debit card 
transaction when there is sufficient money in the account, it 
nonetheless charges a fee on that transaction later because of 
intervening transactions.
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    \24\ Consumer Financial Protection Circular 2022-06, 
Unanticipated Overdraft Fee Assessment, available at: https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.

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4.1.2 CFPB Issued a Bulletin on Unfair Returned Deposited Item Fee 
Assessment Practices

    As described above, on October 26, 2022, the CFPB issued a bulletin 
\25\ stating that blanket policies of charging returned deposited item 
fees to consumers for all returned transactions irrespective of the 
circumstances or patterns of behavior on the account are likely unfair 
under the CFPA.
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    \25\ Bulletin 2022-06: Unfair Returned Deposited Item Fee 
Assessment Practices, available at: https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf.
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4.1.3 CFPB Issued an Advisory Opinion on Debt Collectors Collection of 
Pay To Pay Fees

    On June 29, 2022, the CFPB issued an advisory opinion \26\ 
affirming that Federal law often prohibits debt collectors from 
charging ``pay-to-pay'' fees. These charges, commonly described by debt 
collectors as ``convenience fees,'' are imposed on consumers who want 
to make a payment in a particular way, such as online or by phone.
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    \26\ Advisory Opinion on Debt Collectors' Collection of Pay-to-
Pay Fees, available at: https://www.consumerfinance.gov/compliance/advisory-opinion-program/.
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5. Remedial Actions

5.1 USASF Servicing

    On August 2, 2023, the CFPB filed a lawsuit in Federal court 
against auto loan servicer USASF Servicing, alleging USASF engaged in a 
host of illegal practices that harmed individuals with auto loans.\27\ 
These alleged practices include wrongfully disabling borrowers' 
vehicles, wrongfully activating late payment warning tones, improperly 
repossessing vehicles, double-billing borrowers for insurance premiums, 
misallocating consumer payments, and failing to return millions of 
dollars in unearned GAP premiums to consumers. The CFPB is seeking 
redress for consumers, civil money penalties, and to stop any future 
violations.
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    \27\ Consumer Financial Protection Bureau v. USASF Servicing, 
LLC. The complaint is available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-usasf-servicing-for-illegally-disabling-vehicles-and-for-improper-double-billing-practices/.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-22869 Filed 10-16-23; 8:45 am]
BILLING CODE 4810-AM-P