TD Bank’s Aug. 20 consent order with the Consumer Financial Protection Bureau should be a wake-up call to all banks to review their procedures and practices related to overdraft protection services. TD Bank is one of the top 10 largest banks in the country, and the $122 million settlement signals that the CFPB will pursue what it believes are abusive practices even from large, sophisticated banks.
The CFPB alleged, among other things, that TD Bank improperly enrolled customers in its debit card overdraft program, misled customers regarding what the program covered, and failed to meet credit reporting requirements. The bank was charged with violating Regulation E, the Consumer Financial Protection Act of 2010, the Fair Credit Reporting Act, and Regulation V.
Here are some ways banks can protect themselves from such an enforcement action.
Review Overdraft Protection Disclosures
Banks should review their disclosures to ensure they fully explain what types of transactions their overdraft protection services cover. Disclosures should include a fee schedule and state that the service is not required and opt-in only.
The TD Bank consent order focused closely on precision in explaining the transactions covered by different types of overdraft protection.
Develop a Procedure
Banks should have procedures outlining the sequence of notice and consent for overdraft protection services for customer-facing employees. They should require employees to provide customers with all notices and disclosures regarding the relevant services before requesting consent and should not bundle the notices and disclosures in a stack of documents for the customer to review at his or her convenience.
Rather, the customer should have an opportunity to review the documentation about each specific service prior to giving consent for that service. If the consent is electronic, the customer should be required to scroll through the entire disclosure and check a box (at the end) prior to moving forward with account opening. The default must always be opt-out.
Stick to the Script
Rather than leaving the explanation of the overdraft protection service up to individual employees, banks should develop a standard script for all enrollments. The script should exactly mirror the disclosures to ensure that employees do not fill in gaps.
Managers should conduct periodic reviews to ensure that employees do not deviate from the script.
Document, Document, Document
Banks should document what happens and not rely on a customer’s oral consent at any stage of enrollment.
Banks should not pre-mark portions of a consent form indicating customer consent. Instead, they should require the customer to mark the checkbox at the time of signing. If notices or disclosures are separate from consent forms, the consent forms should also include a checkbox indicating that the customer has received and understands the service’s notices and disclosures.
Drop the Sales Tactics
Banks should avoid practices intended to drive up the number of opt-ins. The CFPA forbids an act or practice that “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service.”
To avoid liability, banks should eliminate practices designed to increase the number of opt ins. They should not provide incentives to employees or customers for enrolling customers in overdraft protection services.
The TD Bank consent order is reminiscent of CFPB v. TCF National Bank (D. Minn. Sept. 8, 2017), where the court refused to dismiss claims of deceptive and abusive trade practices regarding TCF’s overdraft protection service “opt-in” program. The CFPB accused TCF of giving bonuses to employees for enrolling customers in its overdraft protection service and for telling existing customers that their checking accounts and ATM cards would lose some functionality if they did not opt in. Ultimately, TCF also entered into a consent decree with the CFPB and paid $30 million.
The practices outlined in TD Bank’s consent order appear to be less egregious than TCF’s, indicating that the CFPB will continue to zealously police overdraft programs.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Greg Cook is the chair of Balch & Bingham’s Financial Services Litigation Practice where his practice centers on financial services and commercial litigation, including class action and complex litigation.
Adam Israel is a partner at Balch & Bingham where he focuses on complex business litigation, primarily in the areas of business torts and unfair competition and banking and financial services.
Trey Bundrick is a member of Balch & Bingham’s Financial Services Litigation Practice where he represents clients in a wide array of matters, including financial services litigation, contract disputes, and mass torts.