Chris Willis, Heryka Knoespel, and Lori Sommerfield discuss overdraft and deposit account fees as they continue to dive into the CFPB's guidance withdrawal.
In this episode of The Consumer Finance Podcast, Chris Willis, Heryka Knoespel, and Lori Sommerfield discuss overdraft and deposit account fees as they continue to dive into the CFPB's guidance withdrawal. They highlight the regulatory and litigation impacts of the rescinded guidance and its impact on banks and financial institutions, particularly in terms of compliance burdens and fee income, while also weighing potential reputational risks and operational challenges that may arise if policy changes follow the CFPB's withdrawn guidance. This episode also emphasizes the importance of financial institutions being prepared to defend against lawsuits, specifically those related to Regulation E and affirmative consent.
The Consumer Finance Podcast– Regulatory Rollback: Impact of the CFPB’s Withdrawal of Overdraft and Deposit Account Fee Guidance on Financial Institutions and Related Litigation Risks
Host: Chris Willis
Guests: Heryka Knoespel and Lori Sommerfield
Date Aired: August 28, 2025
Chris Willis:
Welcome to The Consumer Finance Podcast. I'm Chris Willis, the co-leader of Troutman Pepper Locke's Consumer Financial Services Regulatory Practice. And today, we're going to be talking about some of the withdrawn guidance from the CFPB dealing with overdrafts and deposit account fees, and the impact those may have on the deposit account market.
But before we jump into that topic, let me remind you to visit and subscribe to our blogs, troutmanfinancialervices.com and ConsumerFinancialServicesLawMonitor.com. And don't forget about all of our other great podcasts, the FCRA Focus, the Crypto Exchange, Unauthorized Access, Payments Pros, and of course, Moving the Metal, which is our auto finance podcast. Those are all available on all popular podcast platforms. And speaking of those platforms, if you like this podcast, let us know. Leave us a review on your podcast platform of choice and let us know how we're doing.
Now, as I said, today we're going to be talking about a subset of the guidance that the CFPB withdrew back in May of 2025, this time focusing on issues relating to overdraft fees and other deposit account issues. Joining me today are two of my partners who are regulars on the podcast. And so I'm very happy to welcome them back, Lori Sommerfield, Heryka Knoespel. Lori, Heryka, thanks for being on the podcast again.
Lori Sommerfield:
Thanks, Chris. It's great to be with you again.
Heryka Knoespel:
Thank you, Chris. Great to be here with Lori.
Chris Willis:
Okay, so the subject of overdraft fees, I feel like, was one of the most prominent sort of focus areas for the CFPB during the Biden administration. And by my recollection, it accounted for two or three pretty large consent orders with large banks. And then on top of that, numerous remediations that were forced by the CFPB through supervisory exams and which the CFPB then bragged about in special editions of supervisory highlights, causing hundreds of millions of dollars to change hands from depository institutions to consumers and, in some instances, to the CFPB's penalty fund. And along the way, as the CFPB was doing all this enforcement and supervision related to that issue, it issued numerous pieces of guidance, informal guidance, of course, related to the topic.
And so, Lori, can we start off with you? Tell the audience what are the specific pieces of guidance that relate to overdraft and deposit accounts that were included in the big batch that the CFPB withdrew back in May?
Lori Sommerfield:
The CFPB specifically withdrew four sets of guidance concerning overdraft programs and fees that relate to deposit accounts. I'd be happy to address them, and I'm going to focus on, in particular, two circulars that relate to overdraft fees and practices. The first one was Circular 2024-05 on Improper Overdraft Opt-in Practices. That guidance, which was issued in October of 2024, imposed new obligations on banks and credit unions concerning practices for documenting and retaining consumers’ opt-in choice when they were opting into an overdraft program, a one-time point of sale debit card purchase, or an ATM transaction.
Just as a little bit of background, in 2011, the Dodd-Frank Act amended Reg E to require financial institutions to obtain this affirmative consent, which was known as an opt-in, from consumers before they could charge an overdraft fee on either an ATM or debit card transaction. But the CFPB's circular stated that it was a violation of Reg E if there was no documented proof that a financial institution actually obtained a consumer's affirmative consent to enroll in an overdraft services program before charging an overdraft fee on that type of a transaction.
As a result, CFPB-supervised financial institutions weren't allowed to charge overdraft fees for either ATM or one-time debit transactions without having and maintaining verifiable evidence of a customer's opt-in choice. The industry, of course, objected to this guidance because they felt that it went well beyond the requirements of the Electronic Funds Transfer Act and Reg E, and also violated the Administrative Procedure Act, because it was issued without notice and comment.
I'd like to point out that with the withdrawal of the CFPB guidance, it only eliminates the proof of documentation requirement. It doesn't change the underlying law. Financial institutions still have to get a consumer's affirmative consent before they can charge overdraft fees on either ATM or one-time debit card transactions in order to comply with Reg E.
The next circular was 2022-06 on Unanticipated Overdraft Fee Assessment Practices, which was issued in November of 2022. That was the circular on what the CFPB termed to be “surprise overdraft fees” that was issued concurrently with a public enforcement action that was taken against a regional bank in November of 2022, and it concerned authorize positive/settle negative fees or APSN fees. The CFPB circular stated that APSN overdraft fees are inherently likely unfair under UDAAP even if they comply with the Truth in Lending Act and the Electronic Funds Transfer Act because the customer doesn't have any control over the posting order.
For context, let me just briefly explain what an APSN fee is and how it works. These types of fees can occur when a financial institution assesses an overdraft fee for a debit card transaction or an ATM transaction when a customer has sufficient available funds in their deposit account. Those funds can cover the transaction at the time that the transaction is initiated, and the financial institution goes ahead and authorizes it. But due to intervening authorizations or settlement of other transactions that occur, and this relates to the order in which transactions are posted, the financial institution determines that the customer's balance is actually insufficient at the time of settlement. Then the institution goes ahead and assesses an overdraft fee.
This guidance has quite a history, Chris, as you're aware. Other federal regulators, including the OCC, have previously found that UDAAP risk that's associated with the assessment of APSN fees can be adequately mitigated so long as there are clear and comprehensive disclosures to consumers. And in fact, the CFPB adopted that very same position beginning in 2015. But then this guidance came out in 2022 stating that these types of fees were inherently unfair. And as you know, that was part of former CFPB Director Rohit Chopra's war on “junk fees.”
The Bureau then proceeded after issuing this guidance to scrutinize APSN fees in the context of both examinations and supervision, and basically pressured institutions to drop these kinds of fees. And in some cases, the Bureau even required consumer restitution. APSN fees were really a very hot topic under the subcategory of overdraft fees.
Then I just like to briefly mention two other sets of guidance that were rescinded that also fall into this deposit-related category of fees. The first bulletin is 2022-06, and that was on Unfair Return Deposit Item Fee Assessment Practices issued in November of 2022. That guidance stated that financial institution policies of charging return deposit item fees, also known as RDI fees, when they're applied to customers for all return transactions without taking into account particular facts or circumstances, or perhaps behavioral patterns associated with the deposit account, are likely unfair under UDAAP. Financial institutions basically were pressured by the CFPB into dropping those types of fees as well.
But just to explain, an RDI fee is incurred when a customer deposits a third-party check into their checking account that is then returned to the customer because the third-party check bounced. And often, the customer has no knowledge that the third-party's account had insufficient funds to pay the check.
Finally, the last circular that was withdrawn is Circular 2023-02, Reopening Deposit Accounts that Customers Previously Closed. This guidance came out in May of 2023, and it stated that if a financial institution unilaterally reopens a deposit account that was closed by a customer in order to process incoming debits or deposits after an account closes, it can be unfair under UDAAP because it can cause harm to the customer if he incurs overdraft fees, insufficient fund fees, or account maintenance fees. And if a customer can't pay those fees, then a financial institution could turn around and report that negative information to a credit reporting agency.
The CFPB said that an institution's actions in that case could also be considered deceptive or abusive under UDAAP. To avoid consumer harm, the Bureau recommended that institutions should obtain the customer's prior express authorization before reopening a deposit account. And if the customer didn't reauthorize the account to be reopened, then the institution should just go ahead and return the debit or the deposit due to the closed account. This is another piece of guidance that I think created restrictions on institution practices. This was also probably a relief that this circular was rescinded.
Chris Willis:
Certainly a relief. Because I certainly remember my view about APSN fees in particular, that this whole concept of them being an unfair surprise to the customer, I always felt was something of a fiction. Because the customer is the only one who knows what other transactions he or she may have authorized out of the account, like checks that are outstanding, or upcoming debits, or things like that. And making the financial institution responsible for APSN fees takes the customer's responsibility to monitor their account balance and not spend more money than they have, and essentially puts the liability for that on the financial institution. I thought that was unfair, actually.
But with that editorial comment out of the way, Lori, what do you think the general implications of the rescission of these guidance documents are for banks and other financial services companies? And in particular, do you think that banks and other members of the industry might go back to charging these types of fees to consumers and customers?
Lori Sommerfield:
In most cases, I think that the withdrawal of the CFPB guidance is largely a relief and a benefit to the industry. In most cases, this guidance imposed compliance burdens and had a significant adverse impact on fee income. And in each case, the Bureau's interpretations in its war on fees went well beyond the parameters of existing federal consumer financial protection laws and regs.
And I think each set of guidance that we've just discussed here is a good example of the type of CFPB regulatory overreach that we saw during the Biden era. But I think many institutions have gone ahead and already complied with these CFPB circulars and bulletins, often at great cost, I might add, and with major modifications to core processing systems. And they did that either voluntarily or through the pressure that the Bureau applied during the examination and supervision process. That tended to create an industry trend to align the market with the Bureau's pro-consumer approach.
My guess is that although some financial institutions might seek to change their deposit related policies and practices in the wake of all this guidance that the CFPB has now withdrawn, I think many institutions are unlikely to retract those policy changes and that's because of potential reputational risk and also the time and cost involved in having to modify core processing systems all over again.
Chris Willis:
Yeah, I think you're exactly right about that. Plus, the removal of overdraft fees was, for some institutions, a matter of very significant public fanfare. And so, they've now gotten customers who are used to not having those fees and who opened accounts under the marketing message of, like, this account has no overdraft fees, which many banks have now. And so, I think it's hard for them to go back.
One impact I do expect on the market though is that the pressure on APSN and other overdraft fees started with larger banks that are subject to CFPB supervision and was kind of in the process of working itself down to smaller banks, even those that are below the $10 billion threshold and not might be regulated by the FDIC, or the OCC, or the National Credit Union Administration for credit unions. And I think those institutions may not eliminate the fees because they had not eliminated them as of the end of the administration. We may see them stay in the market at the scale of those smaller institutions, is my belief.
Lori Sommerfield:
I think that's a very good observation, Chris. And I would agree with you in terms of the trend line there.
Chris Willis:
Heryka, we haven't talked to you yet, and I feel like we should do that because I'm very interested in your take on the litigation front here. And what are the implications of the CFPB playing hokey pokey with this guidance and putting it in and taking it out? What does that do to the litigation landscape against depository banks with respect to overdraft and other fees?
Heryka Knoespel:
This is a topic that we've been closely monitoring because we really think that it's going to open the door for more private litigation. As you can expect, however, the debate is really going to be how much of an impact it will have on the courts and what, if any, importance the courts may give to that absence of the guidance.
And really, I had two reactions when I saw this specific subset of the rescinded guidance. First, as of fees, as you know, fees have always been a hot button issue for litigation. And the private bar may be watching closely to see if there's any changes made by banks and financial services companies to their general fee policies and practices to see if there's any new opportunities to file suit.
But to give you some background, overdrafts specifically had already a ton of litigation over overdraft practices prior to the 2022 unanticipated overdraft fee circular and the 2024 opt-in circular. We were seeing plaintiffs' complaints raise these alternative fact universes, right? I did receive the federally required notice, or I didn't receive the federally required notice and did not opt in. And so, the courts were really grappling with these plaintiffs' complaints raising these alternate universes.
And what we saw is a flow of various motions to dismiss filings by the financial institutions that were sued, and the opinions that followed were allowing these alternate-universe pleadings to go through. And relevant to our discussion today, allowing claims as to whether customers received the opt-in notice and affirmatively consented to survive. And also, allowing claims to go forth as to the calculation and whether or not the agreements were ambiguous. And if they were ambiguous, what extrinsic evidence would be needed to reach a ruling?
Really, these circulars in this particular context of the fee litigation may not change much of the results. We already had a lot of case law on these issues prior to the circulars being issued, and the courts were really looking at the actual letter of the law. Regulation E requires financial institutions to secure a consumer's affirmative consent before charging overdraft fees and also stipulates that consent can be secured through the use of an opt-in form that is substantially similar to the model form A. And that form must include a brief description of the financial institution's overdraft service and the types of transactions for which a fee or charge is going to be imposed.
We can expect a lot more of this litigation, Chris, unfortunately. In fact, I just saw one as recent as July in the Eastern District of Virginia, where there was a punitive class action on these same issues, alleging a financial institution did not obtain its customers' affirmative consent as required by Regulation E and alleging it failed to describe how the overdrafts were determined.
Interestingly, in that opinion, there was no reference to the rescission of this guidance. And so, it's really interesting that we're not really seeing too much of an impact of that rescission yet, but this type of litigation continues. And then second, more broadly, Chris, my reaction to the guidance is that there is a lot of deposit litigation case law already, even outside of this overdraft situation.
For example, on the reopening issue, the circular that Lori was talking about, that actually followed a lot of litigation on that issue of whether financial institutions could unilaterally reopen accounts following a closure without notice. For that world too, we're already having a lot of case law, and we may not see too much of an impact of the rescission.
More generally, we're starting to see some court orders showing practical implications, Chris. The CFPB has been moving to withdraw its amicus briefs in certain private litigations where it has sought to express its views. As recent as June, one court granted the CFPB's motion, but only in part, stating that it would allow it to withdraw its amicus brief now that there was withdrawn guidance as to fees, but that it would not strike it from the record. As a result, the court could consider it to the extent that its contents were consistent with operative statutes, and regulations, and case law. Basically, Chris, we're all staying tuned to see if there's any changes. But, generally, we're seeing the courts just continue to follow the letter of the law.
Chris Willis:
Okay. Thanks very much. Well, let's wrap up this episode by talking about what is the action item for banks and other financial institutions in the wake of the situation we find ourselves in now. Lori, why don't you go first on the sort of regulatory implications? What should the industry do?
Lori Sommerfield:
Sure, Chris. I have a few ideas. First of all, I'd recommend that financial institutions begin evaluating their overdraft and deposit fee programs to determine whether any of their policies, procedures, or practices might need to be adjusted in light of their rescinded guidance in order to align with the new legal framework that's being created, which is basically a return to the underlying statutes and regulations. I think this would be a particularly valuable exercise where you've got compliance frameworks concerning particular product types —
deposit products — that were built around this informal guidance that we've now seen withdrawn by the CFPB.
Secondly, institutions that are interested in retrieving some of that lost fee income might want to analyze the cost-benefit of potentially reimposing those types of fees on consumers but taking into account the potential reputational risk of doing so, as we talked about earlier in this podcast. And then, of course, there are also operational issues to evaluate and consider, like modifying core processing systems to adjust fees. And as the audience knows, those would require significant time, money, and resources to modify. That's a real risk to consider if any of these fees might be re-imposed.
But nonetheless, I did want to make a point about the CFPB's action in withdrawing these 67 sets of guidance. Basically, the Bureau said in their Federal Register notice that the withdrawal of the documents isn't necessarily final because they're conducting a further review and are continuing to identify which guidance documents will ultimately remain withdrawn. It's possible that some of them could be clawed back.
The CFPB apparently plans to issue some sort of final list of regulatory guidance that will be rescinded. And I would assume that's likely to occur soon, given the timeline on this, which was supposed to be in about a 60-day period, 60 to 90, let's say. As a result of that statement in the Federal Register notice, I'd recommend holding off on making any final decisions about adjustments to deposit-related overdraft programs and related fees because that list of regulatory guidance that's going to be withdrawn isn't final yet.
Chris Willis:
Okay, thanks. Heryka, how about you on the litigation side? What should we consider in terms of litigation strategy?
Heryka Knoespel:
For litigation strategy, we're keeping an eye on the big picture here. So, the underlying laws are still in effect. The rescinded guidance documents do not invalidate or change the underlying statutes and regulations they were meant to interpret. We will continue to see private litigation on these underlying statutes, regulations, as consumers and businesses are still bound by them. And plaintiffs, of course, will continue to litigate if they feel wronged, regardless of any specific guidance that has been rescinded.
Big picture here, because the lawsuits will continue, we need to make sure that our clients are aware of the laws that are applicable to their business and have a plan in place to defend if a lawsuit comes. Specific to the Electronic Funds Transfer Act and Regulation E, for example, making sure that if affirmative consent becomes an issue in your lawsuit, what evidence will you have to show that the customer opted in?
We're watching for litigation trends there, Chris, to be aware of any major shifts and to be able to pivot litigation strategies. But there is plenty out there to support financial institutions, even though they may not get out at the motion to dismiss stage, being able to get out at the motion for summary judgment. We're keeping a big picture here, Chris, but we are optimistic that these litigation strategies, because our clients are always aware of those underlying laws and the letter of the law, that at the end of the day, we're going to be successful in these litigations.
Chris Willis:
Okay. Well, thank you very much, Heryka. And Lori, thank you for being on the podcast as well today. And of course, thanks to all our listeners for tuning in to today's episode as well. Don't forget to visit and subscribe to our blogs, troutmanfinancialervices.com and ConsumerFinancialServicesLawMonitor.com. And while you're at it, why not visit us on the web at troutman.com and add yourself to our Consumer Financial Services email list? That way, we can send you copies of the alerts and advisories that we release from time to time, as well as the invitations for our industry-only webinars. And of course, stay tuned for a great new episode of this podcast every Thursday afternoon. Thank you all for listening.
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