On May 10, the CFPB announced the release Circular 2023-02 to confirm that reopening closed accounts may violate federal law. Based on its review of consumer complaints, the CFPB observed that after customers closed their bank accounts, some accounts were reopened without customer consent and then assessed overdraft/nonsufficient funds fees and monthly maintenance fees. The Bureau warned that such practices may violate the CFPA’s prohibition on unfair acts or practices. “When a bank unilaterally chooses to open an account in someone’s name after they have already closed it, this is a fake account,” CFPB Director Rohit Chopra said in the announcement. “The CFPB is acting on all fronts to halt the harvesting of illegal junk fees.”

According to the CFPB, consumers may suffer substantial injury such as monetary harm based on paying fees such as overdraft of nonsufficient funds fees. Additionally, consumers are unable to reasonably avoid this type of injury because, for example, account closures typically require an extensive, multi-step process that consumers cannot control. The CFPB then stated that any injury to consumers is likely not outweighed by countervailing benefits to consumers or competition because reopening a closed account does not appear to provide any meaningful benefits to consumers or competition.

Putting It Into Practice: With this latest circular and the CFPB’s continued scrutiny of junk fees (see our previous blog post on junk fees here), financial institutions should prepare for increased inquiries related to account closures and practices allowing for unilateral account reopening. Banks should review existing account closing procedures to avoid potential claims or enforcement actions and to provide clarity to any potential customer confusion related to account closures.