The Consumer Financial Protection Bureau (CFPB) has reversed course on its January 2020 policy statement regarding the prohibition on abusive acts or practices “to better protect consumers and the marketplace … and to enforce the law as Congress wrote it.” This new leadership action takes the view that the 2020 Policy statement was inconsistent with the Bureau’s duty to uphold enforcement of the prohibition on abusive acts or practices under the Dodd-Frank Act. The policy statement reversal signals a return to the regulation by enforcement model favored by the Bureau under Director Richard Cordray.
The more focused approach on issues protecting consumers against unfair, deceptive, or abusive acts or practices (UDAAP)—along with an increase in the aggressive measures law firms are taking to target financial institutions with demand letters and overdraft class-action lawsuits—calls for steps to ensure your overdraft program policies and procedures are compliant and clearly disclosed to your members.
Never minimize the importance of clear, comprehensive disclosures
Since 2005, regulators have been steadfast regarding their expectations for providing consumers with clear, easily understandable disclosures and on-going compliant communication to increase awareness of how to access and utilize overdraft services. In today’s environment, with an increase in litigation targeting overdraft programs, compliant disclosures can be the best defense against the impact of potential legal action.
Utilizing best practices regarding program disclosures and on-going, consistent member communications can relieve your compliance and legal stress, while improving your program’s service delivery quality and overall performance. Following are areas of concern that cause red flags for regulators when reviewing overdraft services—and may lead to increased scrutiny from lawyers seeking class-action participation from consumers.
- Program information provided to new accounts
- Reg E consent process—How to opt in/opt out
- Model Consent form
- Fee amount
- Posting order
- Positive Swipe/Negative Settlement
- Current vs. Available Balance
- Error resolution
- Information on lower-cost alternatives
- Record of member communications
- Multiple presentments
Protect your program with an in-depth disclosure review
Managing your program with best practices in mind adds value—establishing it as a trusted service for your members who experience a financial shortfall. However, when processes and disclosures are unclear or confusing—or an examiner comes across an issue that raises concern—addressing the situation can be time-intensive and the consequences costly for your credit union.
When was the last time you took an objective look over your overdraft program disclosures and procedures?
While internal review of your disclosures and procedures is critical and necessary, there is immense value in utilizing a trusted resource with additional expertise and oversight. You’ll want to ensure they have knowledge and experience dealing with current regulatory expectations and the latest compliance challenges. Plus, awareness of the types of disclosure errors that may trigger regulatory scrutiny and potential lawsuits will be invaluable. This is especially important when it comes to maintaining a fully compliant, consumer-friendly overdraft strategy. Look for a compliance expert that can provide a comprehensive review of your program’s communication materials and make sure all in-person and phone communication scripts are compliant and consistent.
Additionally, a thorough audit of your employee training strategy and materials ensures every employee is getting the same information on how the program works. Together these safeguards will allow you to confidently provide consistent messages for your members—whether they are getting answers from the tellers, call center personnel, or officers.
Offering program details and procedures that are compliant and fully disclosed will protect your credit union from regulatory and legal peril. It also will boost your members’ confidence in what your overdraft service provides—should they decide to use it.