Compliance question of the month: Is it unfair practice to reopen deposit accounts that consumers previously closed to process debits or deposits?

In May 2023, the Consumer Financial Protection Bureau issued Consumer Financial Protection Circular 2023-02 that addresses the reopening of deposit accounts that consumers previously closed. Specifically, the circular warns that it “can constitute an unfair act or practice” for a financial institution to unilaterally reopen deposit accounts that consumers previously closed to process debits or deposits.

My bank is wondering how this circular impacts Regulation E (Expedited Fund Transfer Act) unauthorized transaction claims after an account has been closed. For example, if, after closing an account, a consumer files a timely claim that an unauthorized transaction occurred prior to the closure of the account, the bank must provide provisional credit and allow the consumer to access to those provisionally credited funds while it investigates. (§1005.11(c)(2)(i-ii)). The only way to allow access to the provisional credit is to reopen the closed account. In addition, once the account is re-opened, unrelated overdrafts, service fees, or other transactions could occur.

QIs this now a “unfair” act or practice issue?

ANo. First, the circular states that it “can” be an unfair act or practices, indicating that it will depend on the specific circumstances. Indeed, regulators frequently acknowledge that whether an act or practice is unfair will depend on the specific facts.

Second, the circular describes the situation where the financial institution “unilaterally” reopens an account even if “doing so would overdraw the account, causing the financial institution to impose overdraft and non-sufficient funds (NSF) fees.” In contrast, a consumer seeking a credit for an alleged unauthorized transaction is arguably taking an initiative to “reopen” the account as that is the only practical way for the bank to provide provisional credit, for the consumer to access it, and for the bank to revoke it if the transaction was in fact authorized. Otherwise, people could close accounts, file false claims, and not return funds provided during the investigation.

Moreover, the CFPB’s is concerned about cases where, after an account is closed, the bank pays an item that puts the account into overdraft status or imposes overdraft, nonsufficient funds, or maintenance fees. The bank may avoid those outcomes when it reopens the account to provide provisional credit by returning any debits that would cause an overdraft, as the Bureau suggests, and not imposing any fees on an otherwise closed account.

For more information, contact ABA’s Leslie Callaway.
Please note that this section is not a substitute for professional legal advice.