VIDEO: Reg E Affirmative Consent
In this Compliance Clip (video), Adam discusses a Regulation E pitfall identified in a recent enforcement action. Specifically, Adam shows how a financial institutions could think they are complying with the affirmative consent provisions for overdraft protection programs under Regulation E, but miss the mark due to logistics of the account opening process. This topic comes right out of our Fall 2020 Quarterly Compliance Update, which can be found in our store here.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to talk about Reg E affirmative consent. I just finished recording our Fall 2020 Quarterly Compliance Update and in doing that, one of the things we talked about in this quarter, and there were a lot of things we talked about, one of the things we talked about with the TD Bank Consent Order and it related to overdraft protection. This is a slide from the Quarterly Compliance Update, but I thought it would share it with all of you, because this is something I really haven't seen brought up before, but is determined to be a problem by the CFPB.
On August 20th, 2020, the CFPB announced a settlement with TD Bank regarding its marketing and sale of its optional overdraft service, which TD Bank referred to as a Debit Card Advance. Debit Card Advance or DCA was TD Bank's overdraft privilege product that is covered under regulation E. It’s an overdraft protection program covered under regulation E. So it's for one time debit card transactions and ATM transactions. ATM and one time debit card transactions that are covered under regulation E, that's what we're talking about.
According to the release, the CFPB said that TD Bank had several problems, some of these are related to affirmative consent. That's what I want to focus on in this video. There's actually a few more problems than we talked about in our Quarterly Compliance Update, but this is just affirmative consent. What has happened was TD Bank charged consumers overdraft fees for ATM and one-time debit card transactions without obtaining their affirmative consent in violation of Regulation E and Electronic Funds Transfers Act. You may say, why didn’t they get the affirmative consent? Well, they thought they were. What's interesting about this is it comes down to a process. TD bank thought they were complying because they had documentation. They had disclosures that were proper. They had check boxes that were proper, but the way they delivered it caused a problem for TD bank and ended up with this consent order and these major issues.
What was happening specifically was TD bank was opening new accounts, both in branches and out of branches at events. So in branches, what was happening was TD bank was getting an oral consent from a customer before providing the required notice for the overdraft program. What was happening was this resulted in customers, technically not getting a choice and not providing their affirmative consent. Basically, the new accounts representative say, “Hey, Mr. Joe Blow”, cause I'm sure that's your name. It's not. I don't know. I can't make this any more active. It's a video, but I can't make it any more active, but “Hey, Mr. or Mrs. Customer, “ is what I would say. “We have this overdraft program that pays for ATM and one -time debit card transactions and it might be beneficial because if you get stuck at a grocery store and you're trying to pay and you don't have enough funds, you could avoid the embarrassment of having your card declined, having all your frozen food melt while you run home to try to find cash or not being able to put groceries on the plate, this would help cover those protections.” At least that's what the big banks sell it as a selling point. So the customer will say, “Okay, I'll take that.” Because the salesperson is probably pretty salesy. And says, “Oh, okay, fine. I'll do it.” And the salesperson says, great. And what they'll do is they'll literally type it in and then they will have a form print out or a preprinted form, the one that's checked with the box - Yes. They will give that ticket to the customer to sign.
That's a problem for a couple of reasons, because first and foremost, what you have to do is give the customer the written notice first, then they make their affirmative consent. When the box is pre-checked, as what the CFPB is saying here that TD Bank did, that becomes a problem. This pre-checked box actually becomes a problem, especially when they didn't get their written disclosure first, it's pre-checked, now they don't have a chance to make their affirmative consent because it's pre-checked. You may argue this, but this is what the CFPB has said, that pre-checked boxes are not working because for affirmative consent, they have to first get the written notice and then be able to check the box. The oral notice doesn't count. It has to be a written notice, it has to be a written affirmative consent, that's what the CFPB is saying.
What TD Bank did at events for their offset account opening, they had their account-opening form, so not a separate DCA form, but the actual account-opening form was an authorization form that had a box to check to enroll in DCA. But the required written disclosure was a separate document that the employee had to remember to bring with them to the event. The CFPB found that many times the employees actually forgot to bring it and didn't provide it to the customer but still enrolled them in the DCA program, probably because the salespeople got bonuses or some sort of incentive for upselling this overdraft service. That was problematic.
We may say this is a brand new issue, right? This is something we haven't heard before. I've not seen an enforcement action on this specifically in the past, but in fact, this is an old rule. TD Bank should have known this if they had read the commentary to regulation E, because the commentary specifically says this, “An institution does not obtain a consumer's affirmative consent by including preprinted language about the overdraft service and an account disclosure provided with a signature card or contract that the consumer must sign to open the account and then acknowledges the consumer's acceptance of the account.” Well, that doesn't really answer it, but check this out. It says, “Nor does an institution obtain a consumer's affirmative consent by providing a signature card that contains a pre-selected check box indicating that the consumer is requesting this service.”
Take a look at your practices in your organization and see if your overdraft process has pre-printed boxes. What the CFPB is saying and what the actual commentary says is you need to give the customer the form that is not preprinted. What was happening on the other slide that I fast forwarded through, when the TD Bank employees are going to events, they were writing it in for the customer, helping them fill it out. They were checking the box for the customer based on what they selected. The CFPB said that that was not enough. That that was a problem. When the employees were filling it out, that was not enough to be affirmative consent. The customers had to check the box themselves, right?
Take a look at your organization, see if that's a problem, see if it's something you need to deal with. Hopefully that is beneficial. That's all I have for this Compliance Clip.