Compliance Article
12/14/2007
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We have been informed of the following recent developments:
- FDIC examiners have cited several banks in Minnesota for unfair or deceptive acts or practices for providing consumers at ATMs with only single combined account balances of funds available for withdrawal, including both their actual account balances and overdraft protection or line of credit amounts;
- The FDIC examiners indicated that they would issue similar citations if such single combined account balances were provided over the internet or telephone;
- The FDIC examiners required the banks to go back six years and reimburse consumers for any overdraft fees or other fees or interest paid during the period when the single combined account balances were thus being provided; and
- The FDIC examiners required the banks to take corrective action: (a) by ceasing to provide single combined account balances of funds available for withdrawal at ATMs or over the internet or telephone, (b) by providing appropriate warnings at ATMs or over the internet or telephone (the specific language of which was not prescribed) that reliance on the single combined account balances could result in the imposition of overdraft fees or other fees or interest, or (c) by providing appropriate disclosures at account opening (the specific language of which was not prescribed) in Truth in Savings disclosures, electronic funds transfer disclosures, and line of credit agreements.
See generally, November 1, 2007, Minnesota Bankers Association Legal Compliance Bulletin, p. 1, “FDIC Targets UDAP in Minnesota”. See also, Winter, 2006, FDIC Supervisor Insights, p. 20, “Corrective Action in the Case of Overdraft Protection and Erroneous ATM Disclosures”.
Analysis
Section 5 of the Federal Trade Commission (FTC) Act prohibits “unfair or deceptive acts or practices in or affecting commerce”. Many states have similar laws prohibiting unfair or deceptive acts or practices. Acts or practices are generally considered unfair if they cause or are likely to cause substantial injury to consumers which is not reasonably avoidable by the consumers and not outweighed by countervailing benefits to consumers or to competition. Acts or practices are generally considered deceptive if they are likely to mislead a consumer who is acting reasonably under the circumstances and are likely to affect the consumer’s conduct or decision with respect to a product or service.
In light of these rules, it’s easy to see how an examiner, a court, or a jury might conclude that it is both unfair and deceptive to provide a consumer at an ATM or over the internet or telephone with single combined account balance of funds available for withdrawal that is the sum of the consumer’s actual account balance and an overdraft protection or line of credit amount, without further explanation or itemization. This is especially true with respect to including an overdraft protection amount in the single combined account balance, because the “hidden” overdraft fee is likely to be relatively substantial. However, it arguably is also true with respect to including a line of credit amount, because interest can mount up, and because consumers can be injured simply by becoming overextended.
It could be argued that consumers should always have an approximate awareness of their actual account balances, and thus should reasonably be able to avoid injury as a result of, and should not reasonably be deceived by, such single combined account balances provided at ATMs or over the internet or telephone. However, the truth probably is that many unsophisticated consumers don’t have such awareness, especially when confronted with apparently contradictory evidence in the form of such single combined account balances at ATMs or over the internet or telephone.
Moreover, it’s easy to see how effective corrective action could be accomplished by either ceasing to provide such single combined account balances at ATMs or over the internet or telephone, or by providing appropriate warnings at ATMs or over the internet or telephone whenever such single combined account balances are so provided. The former would completely eliminate the dangers of single combined account balances, and the latter would greatly reduce the risk of consumers being injured or misled. An appropriate warning should probably include a conspicuous indication that the single combined account balance is more than the consumer’s actual account balance, and that the consumer may incur fees and/or interest expense whenever a withdrawal by specified means (such as by check, in-person withdrawal, ATM withdrawal, or other electronic means) exceeds the consumer’s actual account balance, but there is no clear cut regulatory guidance in this regard.
However, it’s more difficult to see how effective corrective action could be accomplished merely by providing appropriate disclosures at account opening in Truth in Savings disclosures, electronic funds transfer disclosures, and line of credit agreements, as the FDIC examiners appear to have suggested. Such account opening disclosures probably will be long forgotten—if they are read in the first place—by the time the consumers are provided with the single combined account balances at ATMs or over the internet or telephone.
In light of the foregoing, institutions providing consumers at ATMs or over the internet or telephone with single combined account balances available for withdrawal, including both their actual account balances and overdraft protection or line of credit amounts, may be wise to consider either ceasing this potentially unfair or deceptive practice or taking corrective action by providing appropriate warnings at the ATMs or over the internet or telephone. We believe this would certainly be wiser at this point than relying solely on disclosures at account opening in Truth in Savings disclosures, electronic funds transfers disclosures, and line of credit agreements.
Because of their doubtful effectiveness, and because there is no clear cut regulatory guidance as to what they should contain, Wolters Kluwer Financial Services does not at this time contemplate providing any such account opening disclosures for inclusion in Truth in Savings disclosures, electronic funds transfers disclosures, and line of credit agreements. However, we will continue to monitor this issue and will reconsider it in the event of future regulatory guidance. In the meantime, we would suggest that you seek the advice of your attorneys before relying solely on such account opening disclosures or otherwise attempting to design a documentary solution to this issue.
