Consumer Financial Protection Circular 2022-06: Unanticipated Overdraft Fee Assessment Practices

Publisher lists this guidance as withdrawn/rescinded: Consumer Financial Protection Circular 2022-06: Unanticipated Overdraft Fee Assessment Practices, 87 FR 66935 (Nov. 07, 2022); withdrawn on May 12, 2025 .

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Rules and Regulations
Federal Register
66935
Vol. 87, No. 214
Monday, November 7, 2022
1
CFPA section 1036, 12 U.S.C. 5536.
2
Public Law 90–321, 82 Stat. 146 (May 29, 1968),
codified as amended at 15 U.S.C. 1601 et seq.
3
34 FR 2002 (Feb. 11, 1969). See also, e.g., 12
CFR 1026.4(c)(3) (excluding charges imposed by a
financial institution for paying items that overdraw
an account from the definition of ‘‘finance charge,’’
unless the payment of such items and the
imposition of the charge were previously agreed
upon in writing); 12 CFR 1026.4(b)(2) (providing
that any charge imposed on a checking or other
transaction account is an example of a finance
charge only to the extent that the charge exceeds the
charge for a similar account without a credit
feature).
DEPARTMENT OF ENERGY
10 CFR Parts 429 and 430
[EERE–2021–BT–TP–0030]
RIN 1904–AF29
Energy Conservation Program: Test
Procedure for Central Air Conditioners
and Heat Pumps
Correction
In rule document 2022–22257,
appearing on pages 64550–64607, in the
issue of Tuesday, October 25, 2022,
make the following correction:
■Appendix M to Subpart B of Part 430
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On page 64588, in Appendix M to
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column, the equation in the 6th line
down is corrected to read as set forth
below.
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[FR Doc. C1–2022–22257 Filed 11–4–22; 8:45 am]
BILLING CODE 0099–10–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
Consumer Financial Protection
Circular 2022–06: Unanticipated
Overdraft Fee Assessment Practices
AGENCY: Bureau of Consumer Financial
Protection.
ACTION: Consumer financial protection
circular.
SUMMARY: The Consumer Financial
Protection Bureau (Bureau or CFPB) has
issued Consumer Financial Protection
Circular 2022–06, titled, ‘‘Unanticipated
Overdraft Fee Assessment Practices.’’ In
this Circular, the Bureau responds to the
question, ‘‘Can the assessment of
overdraft fees constitute an unfair act or
practice under the Consumer Financial
Protection Act (CFPA), even if the entity
complies with the Truth in Lending Act
(TILA) and Regulation Z, and the
Electronic Fund Transfer Act (EFTA)
and Regulation E?’’
DATES: The Bureau released this
Circular on its website on October 26,
2022.
ADDRESSES: Enforcers, and the broader
public, can provide feedback and
comments to Circulars@cfpb.gov.
FOR FURTHER INFORMATION CONTACT:
Sonya Pass, Senior Legal Counsel, Legal
Division, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
Question Presented
Can the assessment of overdraft fees
constitute an unfair act or practice
under the Consumer Financial
Protection Act (CFPA), even if the entity
complies with the Truth in Lending Act
(TILA) and Regulation Z, and the
Electronic Fund Transfer Act (EFTA)
and Regulation E?
Response
Yes. Overdraft fee practices must
comply with TILA, EFTA, Regulation Z,
Regulation E, and the prohibition
against unfair, deceptive, and abusive
acts or practices in section 1036 of the
CFPA.
1
In particular, overdraft fees
assessed by financial institutions on
transactions that a consumer would not
reasonably anticipate are likely unfair.
These unanticipated overdraft fees are
likely to impose substantial injury on
consumers that they cannot reasonably
avoid and that is not outweighed by
countervailing benefits to consumers or
competition.
As detailed in this Circular,
unanticipated overdraft fees may arise
in a variety of circumstances. For
example, financial institutions risk
charging overdraft fees that consumers
would not reasonably anticipate when
the transaction incurs a fee even though
the account had a sufficient available
balance at the time the financial
institution authorized the payment
(sometimes referred to as ‘‘authorize
positive, settle negative (APSN)’’).
Background
An overdraft occurs when consumers
have insufficient funds in their account
to cover a transaction, but the financial
institution nevertheless pays it. Unlike
non-sufficient funds penalties, where a
financial institution incurs no credit
risk when it returns a transaction
unpaid for insufficient funds, clearing
an overdraft transaction is extending a
loan that can create credit risk for the
financial institution. Most financial
institutions today charge a flat per-
transaction fee, which can be as high as
$36, for overdraft transactions,
regardless of the amount of credit risk,
if any, that they take.
Overdraft programs started as
courtesy programs under which
financial institutions would decide on a
manual, ad hoc basis to pay particular
check transactions for which consumers
lacked funds in their deposit accounts
rather than to return the transactions
unpaid, which may have other negative
consequences for consumers. Although
Congress did not exempt overdraft
programs offered in connection with
deposit accounts when it enacted
TILA,
2
the Federal Reserve Board
(Board) in issuing Regulation Z in 1969
created a limited exemption from the
new regulation for financial institutions’
overdraft programs at that time (also
then commonly known as ‘‘bounce
protection programs’’).
3

Overdraft programs in the 1990s
began to evolve away from this
historical model in a number of ways.
One major industry change was a shift
away from manual ad hoc decision-
making by financial institution
employees to a system involving heavy
reliance on automated programs to
process transactions and to make
overdraft decisions. A second was to
impose higher overdraft fees. In
addition, broader changes in payment
transaction types increased the impacts
of these other changes on overdraft
programs. In particular, debit card use
expanded dramatically, and financial
institutions began charging overdraft
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66936 Federal Register/ Vol. 87, No. 214 / Monday, November 7, 2022 / Rules and Regulations
4
CFPB, Study of Overdraft Programs: A White
Paper of Initial Data Findings, at 16 (June 2013),
available at https://files.consumerfinance.gov/f/
201306_cfpb_whitepaper_overdraft-practices.pdf.
5
Id. at 11–12.
6
Id. at 16–17.
7
70 FR 9127 (Feb. 24, 2005).
8
70 FR 29582 (May 24, 2005).
9
15 U.S.C. 45.
10
73 FR 28904 (May 19, 2008).
11
74 FR 5584 (Jan. 29, 2009). The rule also
addressed balance disclosures that institutions
provide to consumers through automated systems.
12
Public Law 90–321, 92 Stat. 3728 (Nov. 10,
1978), codified as amended at 15 U.S.C. 1693 et seq.
13
74 FR 59033 (Nov. 17, 2009).
14
FDIC, Final Overdraft Payment Supervisory
Guidance, FIL–81–2010 (Nov. 24, 2010), available
at https://www.fdic.gov/news/financial-institution-
letters/2010/fil10081.pdf.
15
CFPB Supervisory Highlights, Winter 2015, at
8–9, available at https://files.consumerfinance.gov/
f/201503_cfpb_supervisory-highlights-winter-
2015.pdf.
16
Interagency Overdraft Services Consumer
Compliance Discussion (Nov. 9, 2016), available at
https://www.consumercomplianceoutlook.org/
outlook-live/2016/interagency-overdraft-services-
consumer-compliance-discussion/ (follow
‘‘Presentation Slides’’ hyperlink), at slides 20–21.
17
See Federal Reserve Board, Consumer
Compliance Supervision Bulletin 12 (July 2018),
available at https://www.federalreserve.gov/
publications/files/201807-consumer-compliance-
supervision-bulletin.pdf (stating that it had
identified ‘‘a UDAP violation . . . when a bank
imposed overdraft fees on [point-of-sale]
transactions based on insufficient funds in the
account’s available balance at the time of posting,
even though the bank had previously authorized the
transaction based on sufficient funds in the
account’s available balance when the consumer
entered into the transaction’’).
18
FDIC, Consumer Compliance Supervisory
Highlights 2–3 (June 2019), available at https://
www.fdic.gov/regulations/examinations/
consumercomplsupervisoryhighlights.pdf?
source=govdelivery&utm_medium=email&utm_
source=govdelivery. The agency referred to the
available balance method as assessing overdraft fees
based on the consumer’s ‘‘available balance’’ rather
than the consumer’s ‘‘ledger balance.’’ The agency
stated that use of the available balance method
‘‘creates the possibility of an institution assessing
overdraft fees in connection with transactions that
did not overdraw the consumer’s account,’’ and that
entities could mitigate risk ‘‘[w]hen using an
available balance method, [by] ensuring that any
transaction authorized against a positive available
balance does not incur an overdraft fee, even if the
transaction later settles against a negative available
balance.’’
19
CFPA sections 1031, 1036, 12 U.S.C. 5531,
5536.
fees on debit card transactions, which,
unlike checks, are authorized by
financial institutions at the time
consumers initiate the transactions. And
unlike checks, there are no similar
potential negative consequences to
consumers from a financial institution’s
decision to decline to authorize a debit
card transaction.
As a result of these operational
changes, overdraft programs became a
significant source of revenue for banks
and credit unions as the volume of
transactions involving checking
accounts increased due primarily to the
growth of debit cards.
4
Before debit card
use grew, overdraft fees on check
transactions formed a greater portion of
deposit account overdrafts. Debit card
transactions presented consumers with
markedly more chances to incur an
overdraft fee when making a purchase
because of increased acceptance and use
of debit cards for relatively small
transactions (e.g., fast food and grocery
stores).
5
Over time, revenue from
overdraft increased and began to
influence significantly the overall
pricing structure for many deposit
accounts, as providers began relying
heavily on back-end pricing while
eliminating or reducing front-end
pricing (i.e., ‘‘free’’ checking accounts
with no monthly fees).
6

As a result of the rapid growth in
overdraft programs, Federal banking
regulators expressed increasing concern
about consumer protection issues and
began a series of issuances and
rulemakings. In the late 2000s as the
risk of significant harm regarding
overdraft programs continued to mount
despite the increase in regulatory
activity, Federal agencies began
exploring various additional measures
with regard to overdraft, including
whether to require that consumers
affirmatively opt in before being charged
for overdraft programs. In February
2005, the Board, the Federal Deposit
Insurance Corporation (FDIC), the
National Credit Union Administration
(NCUA), and the Office of the
Comptroller of the Currency (OCC)
issued Joint Guidance on Overdraft
Protection Programs.
7
In May 2005, the
Board amended its Regulation DD
(which implements the Truth in Savings
Act) to expand disclosure requirements
and revise periodic statement
requirements for institutions that
advertise their overdraft programs to
provide aggregate totals for overdraft
fees and for returned item fees for the
periodic statement period and the year
to date.
8
In May 2008, the Board along
with the NCUA and the now-defunct
Office of Thrift Supervision proposed to
exercise their authority to prohibit
unfair or deceptive acts or practices
under section 5 of the Federal Trade
Commission Act (FTC Act)
9
to prohibit
institutions from assessing any fees on
a consumer’s account in connection
with an overdraft program, unless the
consumer was given notice and the right
to opt out of the service, and the
consumer did not opt out.
10
In January
2009, the Board finalized a Regulation
DD rule that, among other things,
expanded the previously mentioned
disclosure and periodic statement
requirements for overdraft programs to
all depository institutions (not just those
that advertise the programs).
11
In
addition, although the three agencies
did not finalize their FTC Act proposal,
the Board ultimately adopted an opt-in
requirement for overdraft fees assessed
on ATM and one-time debit card
transactions under Regulation E (which
implements EFTA)
12
in late 2009.
13

More recently, Federal financial
regulators, such as the CFPB, the Board,
and the FDIC, issued guidance around
practices that lead to the assessment of
overdraft fees. In 2010, the FDIC issued
Final Overdraft Payment Supervisory
Guidance on automated overdraft
payment programs and warned about
product over-use that may harm
consumers.
14
In 2015, the CFPB issued
public guidance explaining that one or
more institutions had acted unfairly and
deceptively when they charged certain
overdraft fees.
15
Beginning in 2016, the
Board publicly discussed issues with
unfair fees related to transactions that
authorize positive and settle negative.
16

In July 2018, the Board issued a
Consumer Compliance Supervision
Bulletin finding certain overdraft fees
assessed based on the account’s
available balance to be an unfair
practice in violation of section 5 of the
FTC Act.
17
In June 2019, the FDIC
issued its Consumer Compliance
Supervisory Highlights and raised risks
regarding certain use of the available
balance method.
18
In September 2022,
the CFPB found that a financial
institution had engaged in unfair and
abusive conduct when it charged APSN
fees.
Analysis
Violations of the Consumer Financial
Protection Act
The CFPA prohibits conduct that
constitutes an unfair act or practice. An
act or practice is unfair when: (1) It
causes or is likely to cause substantial
injury to consumers that is not
reasonably avoidable by consumers; and
(2) The injury is not outweighed by
countervailing benefits to consumers or
to competition.
19

An unanticipated overdraft fee occurs
when financial institutions assess
overdraft fees on transactions that a
consumer would not reasonably expect
would give rise to such fees. The CFPB
has observed that in many
circumstances, financial institutions
have created serious obstacles to
consumers making informed decisions
about their use of overdraft services.
Overdraft practices are complex—and
differ among institutions. Even if a
consumer closely monitors their
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66937 Federal Register/ Vol. 87, No. 214 / Monday, November 7, 2022 / Rules and Regulations
20
See, e.g., CFPB, Consumer voices on overdraft
programs (Nov. 2017), available at https://
files.consumerfinance.gov/f/documents/cfpb_
consumer-voices-on-overdraft-programs_report_
112017.pdf.
21
Depending on the circumstances, assessing
overdraft fees may also implicate deceptive or
abusive acts or practices, or other unfair acts or
practices under CFPA sections 1031, 1036, 12
U.S.C. 5531, 5536.
22
See F.T.C. v. Wyndham Worldwide Corp., 799
F.3d 236, 246 (3d Cir. 2015).
23
While financial institutions must obtain a
consumer’s ‘‘opt-in’’ before the consumer can be
charged overdraft fees on one-time debit card and
ATM transactions, 12 CFR 1005.17(b), this does not
mean that the consumer intended to make use of
those services in these transactions where the
consumer believed they had sufficient funds to pay
for the transaction without overdrawing their
account.
account balances and carefully
calibrates their spending in accordance
with the balances shown, they can
easily incur an overdraft fee they could
not reasonably anticipate because
financial institutions use processes that
are unintelligible for many consumers
and that consumers cannot control.
Though financial institutions may
provide disclosures related to their
transaction processing and overdraft
assessment policies, these processes are
extraordinarily complex, and evidence
strongly suggests that, despite such
disclosures, consumers face significant
uncertainty about when transactions
will be posted to their account and
whether or not they will incur overdraft
fees.
20

For example, even when the available
balance on a consumer’s account—that
is, the balance that, at the time the
consumer initiates the transaction,
would be displayed as available to the
consumer—is sufficient to cover a debit
card transaction at the time the
consumer initiates it, the balance on the
account may not be sufficient to cover
it at the time the debit settles. The
account balance that is not reduced by
any holds from pending transactions is
often referred to as the ledger balance.
The available balance is generally the
ledger balance plus any deposits that
have not yet cleared but are made
available, less any pending (i.e.,
authorized but not yet settled) debits.
Since consumers can easily access their
available balance via mobile
application, online, at an ATM, or by
phone, they reasonably may not expect
to incur an overdraft fee on a debit card
transaction when their balance showed
there were sufficient available funds in
the account to pay the transaction at the
time they initiated it. Such transactions,
which industry commonly calls
‘‘authorize positive, settle negative’’ or
APSN transactions, thus can give rise to
unanticipated overdraft fees.
This Circular highlights potentially
unlawful patterns of financial
institution practices regarding
unanticipated overdraft fees and
provides some examples of practices
that might trigger liability under the
CFPA. This list of examples is
illustrative and not exhaustive.
21

Enforcers should closely scrutinize
whether and when charging overdraft
fees may contravene Federal consumer
financial law. A ‘‘substantial injury’’
typically takes the form of monetary
harm, such as fees or costs paid by
consumers because of the unfair act or
practice. In addition, actual injury is not
required; a significant risk of concrete
harm is sufficient.
22
An injury is not
reasonably avoidable by consumers
when consumers cannot make informed
decisions or take action to avoid that
injury. Injury that occurs without a
consumer’s knowledge or consent, when
consumers cannot reasonably anticipate
the injury, or when there is no way to
avoid the injury even if anticipated, is
not reasonably avoidable. Finally, an act
or practice is not unfair if the injury it
causes or is likely to cause is
outweighed by its consumer or
competitive benefits.
Charging an unanticipated overdraft
fee may generally be an unfair act or
practice. Overdraft fees inflict a
substantial injury on consumers. Such
fees can be as high as $36; thus
consumers suffer a clear monetary
injury when they are charged an
unexpected overdraft fee. Depending on
the circumstances of the fee, such as
when intervening transactions settle
against the account or how the financial
institution orders the transactions at the
end of the banking day, consumers
could be assessed more than one such
fee, further exacerbating the injury.
These overdraft fees are particularly
harmful for consumers, as consumers
likely cannot reasonably anticipate them
and thus plan for them.
As a general matter, a consumer
cannot reasonably avoid unanticipated
overdraft fees, which by definition are
assessed on transactions that a
consumer would not reasonably
anticipate would give rise to such fees.
There are a variety of reasons consumers
might believe that a transaction would
not incur an overdraft fee, because
financial institutions use complex
policies to assess overdraft fees that are
likely to be unintelligible to many
consumers. These policies include
matters such as the timing gap between
authorization and settlement and the
significance of that gap, the amount of
time a credit may take to be posted on
an account, the use of one kind of
balance over another for fee calculation
purposes, or the order of transaction
processing across different types of
credit and debits. Mobile banking and
the widespread use of debit card
transactions could create a consumer
expectation that account balances can
be closely monitored. Consumers who
make use of these tools may reasonably
think that the balance shown in their
mobile banking app, online, by
telephone, or at an ATM, for example,
accurately reflects the balance that they
have available to conduct a transaction
and, therefore, that conducting the
transaction will not result in being
assessed one or more overdraft fees. But
unanticipated overdraft fees are caused
by often convoluted settlement
processes of financial institutions that
occur after the consumer enters into the
transaction, the intricacies of which are
explained only in fine print, if at all.
Consumers are likely to reasonably
expect that a transaction that is
authorized at point of sale with
sufficient funds will not later incur
overdraft fees. Consumers may
understand their account balance based
on keeping track of their expenditures,
or increasingly through the use of
mobile and online banking, where debit
card transactions are immediately
reflected in mobile and online banking
balances. Consumers may reasonably
assume that when they have sufficient
available balance in their account at the
time they entered into the transaction,
they will not incur overdraft fees for
that transaction. But consumers
generally cannot reasonably be expected
to understand and thereby conduct their
transactions to account for the delay
between authorization and settlement—
a delay that is generally not of the
consumers’ own making but is the
product of payment systems. Nor can
consumers control the methods by
which the financial institution will
settle other transactions—both
transactions that precede and that
follow the current one—in terms of the
balance calculation and ordering
processes that the financial institution
uses, or the methods by which prior
deposits will be taken into account for
overdraft fee purposes.
23

The injury from unanticipated
overdraft fees likely is not outweighed
by countervailing benefits to consumers
or competition. Where a financial
institution has authorized a debit card
transaction, the institution is obligated
to pay the transaction, irrespective of
whether an overdraft fee is assessed.
Access to overdraft programs therefore
is not a countervailing benefit to the
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66938 Federal Register/ Vol. 87, No. 214 / Monday, November 7, 2022 / Rules and Regulations
24
CFPB, ‘‘Comparing overdraft fees and policies
across banks’’ (Feb. 10, 2022), available at https://
www.consumerfinance.gov/about-us/blog/
comparing-overdraft-fees-and-policies-across-
banks/.
25
Sumit Agarwal, Souphala Chomsisengphet,
Neale Mahoney, & Johannes Stroebel, Regulating
Consumer Financial Products: Evidence from Credit
Cards, Quarterly Journal of Economics, Vol. 130,
Issue 1 (Feb. 2015), pp. 111–64, at p. 5 & 42–43,
available at https://academic.oup.com/qje/article/
130/1/111/2338025?login=true.
26
Xavier Gabaix & David Laibson, Shrouded
Attributes, Consumer Myopia, and Information
Suppression in Competitive Markets, Quarterly
Journal of Economics, Vol. 121, Issue 2 (May 2006),
pp. 505–40, available at https://
pages.stern.nyu.edu/∼xgabaix/papers/
shrouded.pdf; see also Steffen Huck & Brian
Wallace, The impact of price frames on consumer
decision making: Experimental evidence (2015),
available athttps://www.ucl.ac.uk/∼uctpbwa/
papers/price-framing.pdf; Agarwal et al., Regulating
Consumer Financial Products, supra note 25; Sumit
Agarwal, Souphala Chomsisengphet, Neale
Mahoney, & Johannes Stroebel, A Simple
Framework for Establishing Consumer Benefits from
Regulating Hidden Fees, Journal of Legal Studies,
Vol. 43, Issue S2 (June 2014), pp. S239–52,
available at https://nmahoney.people.stanford.edu/
sites/g/files/sbiybj23976/files/media/file/mahoney_
hidden_fees_jls.pdf.
27
See, e.g., CFPB Supervisory Highlights, supra
note 15; Interagency Overdraft Services Consumer
Compliance Discussion, supra note Error!
Bookmark not defined.; Federal Reserve Board,
Consumer Compliance Supervision Bulletin, supra
note Error! Bookmark not defined.; FDIC, Consumer
Compliance Supervisory Highlights, supra note
Error! Bookmark not defined.
assessment of overdraft fees in such
unanticipated circumstances.
Nor does it seem plausible that the
ability to generate revenue through
unanticipated overdraft fees allows for
lower front-end account or maintenance
fees that would outweigh the substantial
injury in terms of the total costs of the
unanticipated overdraft fees charged to
consumers. Indeed, in recent months,
several large banks have announced
plans to entirely eliminate or
significantly reduce overdraft fees.
24
In
other consumer finance contexts,
research has shown that where back-end
fees decreased, companies did not
increase front-end prices in an equal
amount.
25
But even a corresponding
front-end increase in pricing would
generally not outweigh the substantial
injury from unexpected back-end fees.
As for benefits to competition,
economic research suggests that shifting
the cost of products from front-end
prices to back-end fees risks harming
competition by making it more difficult
to compete on transparent front-end fees
and reduces the portion of the overall
cost that is subject to competitive price
shopping.
26
This is especially the case,
where, as here, the fees likely cannot
reasonably be anticipated by consumers.
Given that back-end fees are likely to be
harmful to competition, it may be
difficult for institutions to demonstrate
countervailing benefits of this practice.
A substantial injury that is not
reasonably avoidable and that is not
outweighed by such countervailing
benefits would trigger liability under
existing law.
Examples of Potential Unfair Acts or
Practices Involving Overdraft Fees That
Consumers Would Not Reasonably
Anticipate
In light of the complex systems that
financial institutions use for overdraft,
such as different balance calculations
and transaction processing orders,
enforcers should scrutinize situations
likely to give rise to unanticipated
overdraft fees. The following are non-
exhaustive examples of such practices
that may warrant scrutiny.
Unanticipated overdraft fees can
occur on ‘‘authorize positive, settle
negative’’ or APSN transactions, when
financial institutions assess an overdraft
fee for a debit card transaction where
the consumer had sufficient available
balance in their account to cover the
transaction at the time the consumer
initiated the transaction and the
financial institution authorized it, but
due to intervening authorizations,
settlement of other transactions
(including the ordering in which
transactions are settled), or other
complex processes, the financial
institution determined that the
consumer’s balance was insufficient at
the time of settlement.
27
These
unanticipated overdraft fees are
assessed on consumers who are opted in
to overdraft coverage for one-time debit
card and ATM transactions, but they
likely did not expect overdraft fees for
these transactions.
The following table (Table 1) shows
an example of unanticipated overdraft
fees involving a debit card transaction
with an intervening debit transaction.
The consumer is charged an overdraft
fee even though the consumer’s
available balance was positive at the
time the consumer entered into the
debit card transaction.
TABLE1—UNANTICIPATEDOVERDRAFTFEEASSESSEDTHROUGHAPSN WITHINTERVENINGDEBITTRANSACTION
Description Transaction
Available
balance
Ledger
balance
Day 1:
Opening Balance ..................................................................................................................$100 $100
Debit card transaction—authorized ......................................................................................¥$50 50 100
Day 2:
Preauthorized ACH debit—posted .......................................................................................¥120 ¥70 ¥20
Overdraft fee .........................................................................................................................¥34 ¥104 ¥54
Day 3:
Debit card transaction—posted ............................................................................................¥50 ¥104 ¥104
Overdraft fee .........................................................................................................................¥34 ¥138 ¥138
For example, as illustrated above in
Table 1, on Day 1, a consumer has $100
in her account available to spend based
on her available balance displayed. The
consumer enters into a debit card
transaction that day for $50. On Day 2,
a preauthorized ACH debit that the
consumer had authorized previously for
$120 is settled against her account. The
financial institution charges the
consumer an overdraft fee. On Day 3,
the debit card transaction from Day 1
settles, but by that point the consumer’s
account balance has been reduced by
the $120 ACH debit settling and the $34
overdraft fee, leaving the balance as
negative $54 using ledger balance, or
negative $104 using available balance.
When the $50 debit card transaction
settles against the negative balance, the
financial institution charges the
consumer another overdraft fee.
Consumers may not reasonably expect
to be charged this second overdraft fee,
based on a debit card transaction that
has been authorized with a sufficient
account balance. The consumer may
reasonably expect that if their account
balance shows sufficient funds for the
transaction just before entering into the
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66939 Federal Register/ Vol. 87, No. 214 / Monday, November 7, 2022 / Rules and Regulations
transaction, as reflected in their account
balance in their mobile application,
online, at an ATM, or by telephone,
then that debit card transaction will not
incur an overdraft fee. Consumers may
not reasonably be able to navigate the
complexities of the delay between
authorization and settlement of
overlapping transactions that are
processed on different timelines and
impact the balance for each transaction.
If consumers are presented with a
balance that they can view in real-time,
they are reasonable to believe that they
can rely on it, rather than have overdraft
fees assessed based on the financial
institution’s use of different balances at
different times and intervening
processing complexities for fee-
decisioning purposes.
Certain financial institution practices
can exacerbate the injury from
unanticipated overdraft fees from APSN
transactions by assessing overdraft fees
in excess of the number of transactions
for which the account lacked sufficient
funds. In these APSN situations,
financial institutions assess overdraft
fees at the time of settlement based on
the consumer’s available balance
reduced by debit holds, rather than the
consumer’s ledger balance, leading to
consumers being assessed multiple
overdraft fees when they may
reasonably have expected only one.
The following table (Table 2) shows
an example of how financial institutions
may process overdraft fees on two
transactions. The consumer is charged
an additional overdraft fee when the
financial institution assesses fees based
on available balance, because the
financial institution is assessing an
overdraft fee on a transaction which the
institution has already used in making
a fee decision on another transaction. By
contrast, the consumer would not have
been charged the additional overdraft
fee if the financial institution used
ledger balance.
TABLE2—UNANTICIPATEDOVERDRAFTFEEASSESSEDTHROUGHAPSN BYFINANCIALINSTITUTIONUSINGAVAILABLE
BALANCE FORFEEDECISION
Description Transaction
Available
balance
Ledger
balance
Day 1:
Opening Balance .................................................................................................................. ........................$100 $100
Debit card transaction—authorized ......................................................................................¥$50 50 100
Day 2:
Preauthorized ACH debit—posted .......................................................................................¥60 ¥10 ¥40
Overdraft fee (assessed based on available balance) ........................................................¥34 ¥44 * 6
Day 3:
Debit card transaction—posted ............................................................................................¥50 ¥44 ¥44
Overdraft fee .........................................................................................................................¥34 ¥78 ¥78
* (But if the financial institution had used ledger balance for fee assessment, the balance would not have been reduced by an overdraft fee.)
For example, as illustrated above in
Table 2, on Day 1, a consumer has $100
in her account, which is the amount
displayed on her online account. The
consumer enters into a debit card
transaction that day for $50. On Day 2,
a preauthorized ACH debit that the
consumer had authorized previously for
$60 is settled against her account.
Because the debit card transaction from
Day 1 has not yet settled, the
consumer’s ledger balance, prior to
posting of the $60 ACH debit, is still
$100. But some financial institutions
will consider the consumer’s balance for
purposes of an overdraft fee decision as
$50, as already having been reduced by
the not-yet-settled debit card transaction
from Day 1, and thus the settlement of
the $60 ACH debit will take the account
negative and incur an overdraft fee. On
Day 3, the debit card transaction from
Day 1 settles, but by that point the
consumer’s balance has been reduced by
the settlement of the $60 ACH debit
plus the overdraft fee for that
transaction. If the overdraft fee is $34,
the consumer’s account has $6 left in
ledger balance. The $50 debit card
transaction then settles, overdrawing the
account and the financial institution
charges the consumer an overdraft fee.
The consumer would not expect two
overdraft fees, since her account balance
showed sufficient funds at the time she
entered into the debit card transaction
to cover either one of them. But in this
example, the financial institution
charged two overdraft fees, by assessing
an overdraft fee on a transaction which
the institution has already used in
making a fee decision on another
transaction. By contrast, a financial
institution using ledger balance for the
overdraft fee decision would have
charged only one overdraft fee.
About Consumer Financial Protection
Circulars
Consumer Financial Protection
Circulars are issued to all parties with
authority to enforce Federal consumer
financial law. The CFPB is the principal
Federal regulator responsible for
administering Federal consumer
financial law, see 12 U.S.C. 5511,
including the Consumer Financial
Protection Act’s prohibition on unfair,
deceptive, and abusive acts or practices,
12 U.S.C. 5536(a)(1)(B), and 18 other
‘‘enumerated consumer laws,’’ 12 U.S.C.
5481(12). However, these laws are also
enforced by State attorneys general and
State regulators, 12 U.S.C. 5552, and
prudential regulators including the
Federal Deposit Insurance Corporation,
the Office of the Comptroller of the
Currency, the Board of Governors of the
Federal Reserve System, and the
National Credit Union Administration.
See, e.g., 12 U.S.C. 5516(d), 5581(c)(2)
(exclusive enforcement authority for
banks and credit unions with $10
billion or less in assets). Some Federal
consumer financial laws are also
enforceable by other Federal agencies,
including the Department of Justice and
the Federal Trade Commission, the
Farm Credit Administration, the
Department of Transportation, and the
Department of Agriculture. In addition,
some of these laws provide for private
enforcement.
Consumer Financial Protection
Circulars are intended to promote
consistency in approach across the
various enforcement agencies and
parties, pursuant to the CFPB’s statutory
objective to ensure Federal consumer
financial law is enforced consistently.
12 U.S.C. 5511(b)(4).
Consumer Financial Protection
Circulars are also intended to provide
transparency to partner agencies
regarding the CFPB’s intended approach
when cooperating in enforcement
actions. See, e.g., 12 U.S.C. 5552(b)
(consultation with CFPB by State
attorneys general and regulators); 12
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66940 Federal Register/ Vol. 87, No. 214 / Monday, November 7, 2022 / Rules and Regulations
1
As a matter of prosecutorial discretion, the
CFPB does not intend to seek monetary relief for
potential unfair practices regarding Returned
Deposited Item fees assessed prior to November 1,
2023.
2
12 U.S.C. 5536(a)(1)(B).
3
12 U.S.C. 5531(c)(1).
4
See F.T.C. v. Neovi, Inc., 604 F.3d 1150, 1158
(9th Cir. 2010).
U.S.C. 5562(a) (joint investigatory work
between CFPB and other agencies).
Consumer Financial Protection
Circulars are general statements of
policy under the Administrative
Procedure Act. 5 U.S.C. 553(b). They
provide background information about
applicable law, articulate considerations
relevant to the Bureau’s exercise of its
authorities, and, in the interest of
maintaining consistency, advise other
parties with authority to enforce Federal
consumer financial law. They do not
restrict the Bureau’s exercise of its
authorities, impose any legal
requirements on external parties, or
create or confer any rights on external
parties that could be enforceable in any
administrative or civil proceeding. The
CFPB Director is instructing CFPB staff
as described herein, and the CFPB will
then make final decisions on individual
matters based on an assessment of the
factual record, applicable law, and
factors relevant to prosecutorial
discretion.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2022–23982 Filed 11–4–22; 8:45 am]
BILLING CODE 4810–AM–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
Bulletin 2022–06: Unfair Returned
Deposited Item Fee Assessment
Practices
AGENCY: Bureau of Consumer Financial
Protection.
ACTION: Compliance bulletin.
SUMMARY: A Returned Deposited Item is
a check that a consumer deposits into
their checking account that is returned
to the consumer because the check
could not be processed against the
check originator’s account. Blanket
policies of charging Returned Deposited
Item fees to consumers for all returned
transactions irrespective of the
circumstances or patterns of behavior on
the account are likely unfair under the
Consumer Financial Protection Act
(CFPA). The Consumer Financial
Protection Bureau (Bureau or CFPB) is
issuing this bulletin to notify regulated
entities how the Bureau intends to
exercise its enforcement and
supervisory authorities on this issue.
DATES: This bulletin is applicable as of
November 7, 2022.
FOR FURTHER INFORMATION CONTACT:
Sonya Pass, Senior Legal Counsel, Legal
Division, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A Returned Deposited Item is a check
that a consumer deposits into their
checking account that is returned to the
consumer because the check could not
be processed against the check
originator’s account. There are many
reasons deposited items can be returned
unprocessed. For example, the check
originator may not have sufficient funds
available in their account to pay the
amount stated on the check; the check
originator may have directed the issuing
depository institution to stop payment;
the account referenced on the check
may be closed or located in a foreign
country; or there may be questionable,
erroneous, or missing information on
the check, including with respect to the
signature, date, account number, or
payee name.
Consumers often rely on payments
made by check for personal, family, or
household purposes. The check may be
from another consumer or from a
business or entity and may represent a
gift, a refund, a payment, or a public
benefit. In many circumstances, as
discussed below, the check depositor
has no control over whether, and likely
no reason to anticipate that, the
deposited check would be returned. Nor
as a general matter can the check
depositor verify with the check
originator’s depository institution prior
to depositing a check whether there are
sufficient funds in the issuer’s account
for the check to clear. Yet, many
depository institutions have blanket
policies of charging fees to the check
depositor for Returned Deposited Items
for every Returned Deposited Item,
irrespective of the circumstances of the
particular transaction or patterns of
behavior on the account. While certain
entities, such as lenders and landlords,
may be able to recoup such fees from
the check originator, consumers
generally cannot.
Under the blanket policies of
depository institutions, Returned
Deposited Item fees are often in the
range of $10–$19. The fees are typically
charged in a flat amount on a per-
transaction basis. Notably, in the case of
checks that are returned for insufficient
funds, Returned Deposited Item fees are
charged in addition to any non-
sufficient funds fees charged by the
originating bank to the check originator.
Assuming a typical Returned Deposited
Item fee of $12 and a non-sufficient
funds fee of $35, when the depositor’s
bank charges a Returned Deposited Item
fee to the depositor consumer, and the
check originator’s bank charges a non-
sufficient funds fee to the check
originator for the same check, those
banks collectively generate $47 in fees
from each returned check—$12 to the
depositor’s bank, $35 to the originator’s
bank.
II. Violations of the Consumer
Financial Protection Act
1

The Consumer Financial Protection
Act (CFPA) prohibits covered persons
from engaging in unfair acts or
practices.
2
Congress defined an unfair
act or practice as one that (A) ‘‘causes
or is likely to cause substantial injury to
consumers which is not reasonably
avoidable,’’ and (B) ‘‘such substantial
injury is not outweighed by
countervailing benefits to consumers or
to competition.’’
3

Blanket policies of charging Returned
Deposited Item fees to consumers for all
returned transactions irrespective of the
circumstances of the transaction or
patterns of behavior on the account are
likely unfair.
Fees charged for Returned Deposited
Items cause substantial injury to
consumers. Under the blanket policies
of many depository institutions,
Returned Deposited Item fees cause
monetary injury, in the range of $10–19
for each returned item. Depository
institutions that charge Returned
Deposited Item fees for returned checks
impose concrete monetary harm on a
large number of customers.
In many of the instances in which
Returned Deposited Item fees are
charged, consumers would not be able
to reasonably avoid the substantial
monetary injury imposed by the fees.
An injury is not reasonably avoidable
unless consumers are fully informed of
the risk and have practical means to
avoid it.
4
Under blanket policies of
many depository institutions, Returned
Deposited Item fees are charged
whenever a check is returned because
the check originator has insufficient
available funds in their account, the
check originator instructs the
originating depository institution to stop
payment, or the check is written against
a closed account. But a consumer
depositing a check would normally be
unaware of and have little to no control
over whether a check originator has
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