The CFPB recently issued Circular 2023-02 to address a potentially unfair practice of reopening deposit accounts previously closed by consumers.
Since closing an account can take time and effort, the CFPB is concerned that institutions may be reopening those accounts to process any debits or deposits that come in after the fact. Obviously, this is an action that consumers often have no control over. This practice can subject consumers to additional fees (maintenance, overdraft, non-sufficient funds, etc.) and other harm. It also, as the CFPB lays out, subjects an institution to UDAAP risk.
Here is a look into the CFPB’s analysis:
Unilaterally reopening a closed deposit account to process a debit or deposit may cause substantial injury to consumers.
This “injury” may be in fees, unauthorized access by a third party; and/or negative consumer reporting.
The CFPB reiterates that …actual injury is not required; significant risk of concrete harm is sufficient.
Consumers likely cannot reasonably avoid this injury.
Generally, consumers cannot control when a third party tries to initiate a debit or credit. In some cases, a consumer may have even provided the third-party updated account information, but the third party fails to update their records. Similarly, consumers cannot control the steps that are necessary to close out an account or how long it takes to do so. Even when deposit account agreements alert consumers to the possibility of an account being re-opened, the consumer usually has no ability to negotiate this process.
This injury is likely not outweighed by countervailing benefits to consumers or competition.
The CFPB sees no consumer benefit with the practice of reopening closed accounts. In its eyes, declining a transaction trying to post to a closed account alerts the sender that there is incorrect information on file, which often triggers the sender to get updated information. Even deposits trying to post to a closed account can be problematic. Oftentimes, the funds can be depleted by fees and/or other third-party debit attempts before the consumer even has the chance to access the funds. By not reopening closed accounts, financial institutions could likely protect themselves from fraud as well in some cases.
Published
2023/06/02
