Finance & Economics

CFPB Warns Banks Against Creation of Fake Accounts for Fee Harvesting

Consumer Financial Protection Bureau (CFPB) The United States has issued a circular stating that banks unilaterally deciding to reopen a deposit account for processing transactions, previously closed by a customer violate the Consumer Financial Protection Act.

CFPB Warns Banks Against Creation of Fake Accounts for Fee Harvesting

Source: Pixabay.com

This circular was made public after the CFPB stated that financial services consumers send complaints about the actions of financial institutions concerning closed accounts. Banks customers report that some lenders, even after the consumer fulfills all the conditions for closing the account, re-open it, and then charge a commission fee for lack of funds and overdraft.

The CFPB also received complaints that financial institutions charged a fee for servicing the account when reopening. This happened even in cases where the consumer had no obligations to pay for the relevant actions of the lender before closing the account. When the account was reopened, customers who had no corresponding intentions had to pay money for overdrafts, lack of funds, and monthly maintenance.

This practice of financial institutions, recognized as illegal, contains the risk of third parties accessing consumers’ money without their consent. If the re-opening of an account causes overspending, banks may provide negative information to companies that compile reports on the actions of creditors’ clients. This can happen if there is no quick repayment of negative balances.

The CFPB states that consumers often cannot counteract the negative consequences of these practices of financial institutions. This state of affairs is because bank customers cannot control attempts by a third party to deposit money into an account or write it off, are unable to track the timing and process of account closure, and do not affect the terms of deposit account agreements.

Earlier, the CFPB ordered the USAA Federal Savings Bank to pay more than $15 million in compensation to consumers and penalties. This measure of influence was applied, among other things, due to violations of the Law on Financial Protection of Consumers. The Bank is involved in the practice of re-opening deposit accounts that were previously closed by customers. These actions were carried out by the financial institution without obtaining prior permission and without providing consumers with proper notification.

CFPB Director Rohit Chopra said that the account, which was closed by the client and then unilaterally opened by the bank, is fake. He also noted that the bureau is acting on all fronts to stop illegal fees.

As we have reported earlier, CFPB Issues Warning to Abusive Consumer Finance Firms.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.