CFPB warns banks against reopening deposit accounts without permission

The Consumer Financial Protection Bureau today issued a circular stating that a bank may violate federal law if it unilaterally reopens a deposit account to process transactions after a consumer has closed the account. In a statement, the agency claimed it has received complaints about banks reopening closed accounts and then assessing overdraft and nonsufficient funds fees, as well as maintenance fees. The bureau said that such practices may violate the Consumer Financial Protection Act’s prohibition on unfair acts or practices.

The overdraft could occur if the institution re-opens an account to process debits, but also if it reopens an account to process a deposit, giving creditors the opportunity to initiate debits and draw down the funds. The CFPB noted that deposit account agreements allow financial institutions to “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.”

“Consumers may incur overdraft, nonsufficient funds or monthly maintenance fees when a closed account is reopened by the bank,” the CFPB said. “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.”