CFPB Circular 2024-05 - Improper Overdraft Opt-In Practices

Author: Andrew Howard

On September 17, 2024, the CFPB released Circular 2024-05 entitled “Improper Overdraft Opt-In Practices.” The main topic of the Circular was a question presented to the CFPB concerning whether a financial institution can violate the law if there is no proof that it has obtained a consumer’s affirmative consent before levying overdraft fees for ATM and one-time debit card transactions.  In response to this question, the CFPB released this Circular explaining that institutions would be in violation of 1005.17(b)(1) of Regulation E by not proving that the institution has obtained the consumer’s affirmative consent.

The Circular provides an analysis of the CFPB’s supervisory work in relation to the retention of proof that the consumer affirmatively opted into the overdraft program. In these examinations, the CFPB found that some institutions have been unable to provide evidence that consumers had opted into overdraft coverage before they were charged fees for ATM and one-time debit transactions as well as numerous violations of Regulation E’s overdraft opt-in requirements. In response to the mounting violations and record retention problems, the CFPB has provided some examples of ways that the institution can record a consumer’s affirmative opt-in.

Form of records evidencing opt-in:

• For consumers who opt into covered overdraft services in person or by postal mail, a copy of a form signed or initialed by the consumer indicating the consumer’s affirmative consent to opting into covered overdraft services would constitute evidence of consumer consent to enrollment.
• For consumers who opt into covered overdraft services over the phone, a recording of the phone call in which the consumer elected to opt into covered overdraft services would constitute evidence of consumer consent to enrollment.
• For consumers who opt into covered overdraft services online or through a mobile app, a securely stored and unalterable “electronic signature” as defined in the E-Sign Act (15 U.S.C. 7006(5)) conclusively demonstrating the specific consumer’s action to affirmatively opt in and the date that the consumer opted in would constitute evidence of consumer consent to enrollment.

We find that most financial institutions do retain copies of signed opt-in forms (Model A-9) to evidence the customer’s affirmative consent at account opening when it is an in-person account opening. However, documentation concerns may present themselves when the opt-in is offered via telephone or verbally; this could be at account opening or later in the account life cycle. If your institution cannot comply with the guidance by having recordings in place, it would be wise to only accept the opt in via signature.

Another issue that can arise is retaining the confirmation notice which is a separate step after opt-in that must be completed before charging an overdraft fee for ATM and one-time debit transactions. Financial institutions must retain evidence that the confirmation was delivered to the customer. This is customarily a separate system-generated form or built into the opt-in form, but financial institutions must retain documentation evidencing that the customer received a copy of the confirmation before charging an overdraft fee for ATM and one-time debit transactions.
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Circular 2024-05