Banks could violate the Consumer Financial Protection Act by unilaterally reopening consumer deposit accounts to process transactions, according to a May 10 Consumer Financial Protection Bureau circular.
Some consumers told the CFPB that their banks have reopened closed accounts and assessed overdraft, maintenance and NSF fees, even if the consumer was not required to pay such fees before the account was closed. According to the bureau, accounts are sometimes unnecessarily reopened if third parties, such as payroll providers, accidentally try to deposit money to the closed account after the consumer directs them to deposit the funds elsewhere.
Merchants can take an extended amount of time to process refunds to a consumer’s account for a returned item, or sometimes use the wrong account information to process a recurring monthly payment. According to the CFPB, unilaterally reopening accounts can also enable third-parties to access consumer funds without authorization, potentially leading to fraud.
“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,” the CFPB added.
The circular was released four years after the CFPB fined USAA Federal Savings Bank more than $15 million for reopening deposit accounts that consumers had previously closed without seeking prior approval or providing adequate notice. According to the agency, USAA also failed to abide by consumers’ stop payment requests on electronic fund transfers.
“When a bank unilaterally chooses to open an account in someone’s name after they have already closed it, this is a fake account,” CFPB Director Rohit Chopra said in the circular. “The CFPB is acting on all fronts to halt the harvesting of illegal junk fees.”