On May 10, 2023, the CFPB issued a new circular affirming that a bank may violate federal law if it unilaterally reopens a deposit account to process transactions after a consumer has already closed it. The guidance is being issued as a result of complaints that even after a consumer completes all the required steps to close an account, their bank has “reopened” the closed account and assessed overdraft and nonsufficient funds fees. The CFPB also received reports from consumers that financial institutions have also charged account maintenance fees upon reopening, even if the consumer was not required to pay account maintenance fees prior to account closure.
CFPB Director Rohit Chopra said that when a bank unilaterally chooses to open an account in someone’s name after they have already closed it, it is considered a fake account. According to the CFPB, this practice may impose substantial injury on consumers that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition. Consumers may incur overdraft, nonsufficient funds, or monthly maintenance fees when a closed account is reopened by the bank. This practice may also enable third parties to access a consumer’s funds without consent. The circular issued by the CFPB confirms that banks may risk violating the Consumer Financial Protection Act’s prohibition on unfair acts or practices by unilaterally reopening closed accounts.
Read the CFPB’s press release here.
The Consumer Financial Protection Circular can be found here.