CFPB Warns Banks Against Reopening Closed Accounts, Charging Fees

The CFPB is warning banks against reopening closed customer accounts to drive fees.

In a circular published Wednesday (May 10), the Consumer Financial Protection Bureau says it had received consumer complaints that their banks have reopened accounts they had taken steps to close, charging them overdraft, insufficient fund and maintenance fees.

“When a bank unilaterally chooses to open an account in someone’s name after they have already closed it, this is a fake account,” said CFPB Director Rohit Chopra. “The CFPB is acting on all fronts to halt the harvesting of illegal junk fees.”

The release notes that closing a bank account can be difficult and time consuming, and after closing, consumers can lose access to their account information or stop receiving notifications about activity on their accounts.

Banks may risk violating the Consumer Financial Protection Act’s prohibition on unfair acts or practices by unilaterally reopening accounts after they’ve closed, the bureau said. The practice lets third parties access a consumer’s funds without permission.

And if reopening the account causes an overdraft — something the CFPB has deemed illegal — banks can provide negative information to consumer reporting companies if customers don’t settle negative balances quickly, something that can be difficult if they’re not getting notifications.

“Consumers often cannot reasonably avoid the risk of substantial injury caused by this practice because they cannot control a third party’s attempt to debit or deposit money, the process and timing of account closure, or the terms of deposit account agreements,” the CFPB said.

The CFPB’s warning comes weeks after another regulatory agency — the Office of the Comptroller of the Currency (OCC) — issued a bulletin saying banks should consider providing lower-cost alternatives to cover overdrafts.

PYMNTS noted recently that some of the CFPB’s efforts to police junk fees could have unintended consequences.

For example, the agency has estimated that a proposed cap on late fees could save consumers somewhere around $9 billion.

“There’s a bit of Catch-22 here,” PYMNTS wrote, noting Federal Reserve data has estimated that fees account for 16% of banks’ profitability. Banks can use profits to invest in innovation that helps lower the cost of services for consumers.

And on the flip side, it’s “not inconceivable to surmise that there would be attempts made to compensate for the loss of profits that would affect all consumers — i.e., through higher interest rates,” the report said.