BCFP enters into Consent Order with Federal Savings Bank over Alleged EFTA and CFPA Violations
The BCFP recently entered into a consent order with a federal savings bank over alleged violations of: (i) the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E for failing to honor stop payment requests and properly conduct error resolution investigations; and (ii) the Consumer Financial Protection Act of 2010 (CFPA) for reopening consumers’ deposit accounts without authorization or providing timely notice.
According to the consent order, on numerous occasions prior to 2015, the bank violated the EFTA – which allows consumers to stop payment of preauthorized electronic fund transfers (EFTs) by providing notice up to three business days preceding the scheduled transfer – after receiving stop payment requests by failing to stop payments or by requiring consumers to contact the merchants initiating the EFTs prior to implementing such requests. In other instances, the bank allegedly improperly refused to stop payments because the transactions involved payday loans, or failed to honor oral stop payment requests for 14 days, as required by the EFTA. Until January 2015, the bank also allegedly lacked a systemic mechanism to stop payment of preauthorized EFTs processed with debit cards, resulting in thousands of unauthorized transfers.
Also alleged in the consent order, the bank failed to properly conduct error resolution investigations in numerous instances, violating the EFTA’s requirement that such investigations must be initiated promptly and include a reasonable review of all relevant records. As a matter of policy, the bank allegedly did not investigate reported errors unless a written statement of unauthorized debit was submitted within 10 days of the bank sending the consumer that form. The consent order also alleged that separate procedures existed for payday loans, pursuant to which the bank improperly instructed consumers to dispute errors directly with their lenders and, on numerous occasions, refused to investigate errors involving payday loans. The bank also allegedly routinely failed to conduct a reasonable review of its own records when determining the validity of an asserted error, resulting in numerous incorrect “no error” findings.
The consent order also states that the bank engaged in unfair acts and practices under the CFPA from July 2011 to November 2016. During this period, the bank allegedly reopened 16,980 closed accounts, upon its receipt of certain types of debits or credits to such accounts, without obtaining authorization from, or providing timely notice to, consumers holding those accounts. The BCFP determined that such practices, which resulted in 5,118 accounts incurring fees totaling an estimated $269,365, caused substantial injury to consumers that was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.
The consent order requires the bank to, among other things: (i) develop and implement a compliance plan to ensure its stop payment, error resolution, and account reopening practices comply with all applicable federal consumer financial laws and the consent order’s terms; (ii) involve its Board of Directors in the consent order’s implementation and compliance matters; (iii) pay approximately $12 million in restitution and a $3.5 million civil money penalty; (iv) explicitly take several enumerated affirmative actions to prevent future such violations, such as certain express communications it must make to consumers; and (v) engage in additional compliance monitoring, recordkeeping, and reporting.
The BCFP’s related press release can be found here.
