VIDEO: Unfair Statement Fees
In this Compliance Clip (video), Adam discusses how financial institutions can avoid a potential unfair act or practice when it comes to assessing statement fees and returned statement fees. Adam explains how this practice can result to a risk of UDAAP violation and shares some steps on how to make sure your financial institution is doing it right.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about unfair statement fees. This is something that was discussed in our most recent quarterly compliance update and it was a new topic that I really hadn't seen discussed before as we were going through this. I wanted to share this with you because this is a potential hot topic as it relates to UDAAP, specifically, unfair acts or practices. This was actually found back in the CFPB’s special edition of the Supervisory Highlights in the Fall of 2023.
What the CFPB found was that some financial institutions are assessing fees for a number of practices that they are considering to be unfair. They're assessing fees at first on a legitimate basis, but there is action by the bank that causes them to be unfair.
The way they're assessing fees that could be legitimate, could be okay, is in two ways. The first way is assessing fees for statements that are printed and mailed to customers. And then secondly, a fee for statements that are returned by the mail. So, both of those things have a cost and expense involved and so, if disclosed properly, it is okay to assess those fees. However, the CFPB found instances that caused them to fear that there was an unfair act of practice.
What was happening was some financial institutions, and I quote, “did not print or attempt to deliver paper statements, but continued to assess paper statement fees and return mail fees each month.”
Now, I understand in financial institutions, when you're mailing statements on a regular basis, you do this each month or each quarter depending on the account type, but if you're mailing statements every month and you have a customer who has either moved or given you a wrong address, you're going to end up with return mail from that customer, and your list of return statements is pretty much the same every month. And what might happen in a financial institution is somebody might say, hey wait a second, why are we killing trees? We know that these statements are going to be returned so let's quit printing these statements. What's likely happened here is financial institutions made a decision to quit printing statements because they were being returned on a regular basis.
The problem is the CFPB found this practice to be considered an unfair act or practice under UDAAP because the financial institution did not attempt to print or deliver the statement but they were still assessing fees for those two services. And it could be unfair for one service or both or the other one, but if you are charging a fee for printing it and you're not doing it and you're charging a fee for a return statement but it's not actually being printed or returned, that is going to be considered an unfair practice by the CFPB.
So the CFPB provided an example where an elderly customer realized her account was almost completely depleted because the fees had been assessed for nearly five years and she had not received any statements because the financial institution had her wrong address on file. And of course that causes consumer harm and that is problematic.
So, what if you have this issue? And this is something if I were in your shoes, I would take a look and make sure that I do not have this issue in my financial institution because this could be considered an unfair act or practice. So, check with your group that prints statements. See what they do on return statements. See if they ever cancel them. Do they ever quit printing statements, and if they do, ask them for a list of those and see if they're assessing fees because that would be problematic. Now, if you do find an instance where you've been doing this, restitution would really be to stop the practice immediately and refund the fees to the customers.
So, that is something the CFPB brought up and that again, was a topic that we discussed in our Winter 2024 Quarterly Compliance Update. In our quarterly updates, we discuss a lot of little unique nuances just like this. And so, if you've not been a part of our quarterly updates, take a look at them. You can find them in our store at compliancecohort.com/store. Or, if you'd like to subscribe to all four of them, you can do so by being a premium member of the Compliance Cohort because our premium members all have access to all four quarterly compliance updates.
Again, you can find more information in our store at compliancecohort.com/ store. Otherwise, that's all I have for this Compliance Clip.