To Reopen or Not to Reopen, That is the Question! - WST

It may have been a long time since any of us read Hamlet in high school English class, but the line, “To be or not to be”, remains one of the most quoted from all of William Shakespeare’s plays. And now financial institutions are left to ponder just as an equally profound question regarding everything they knew about reopening closed accounts.

The Consumer Financial Protection Bureau (CFPB) issued a circular on May 10, 2023, which cautions financial institutions on the unilateral reopening of previously closed consumer deposit accounts, as such could be in violation of the Consumer Financial Protection Act. The CFPB reported that the practice of unilaterally reopening consumer deposit accounts to process transactions may impose substantial injury on consumers, such as fees for non-sufficient funds and overdrafts or related service charges, that the consumer cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.

Per the CFPB, if a consumer goes through all the steps to close their account, it should remain closed as intended. In most cases, it would behoove institutions to return items as “Closed Account” unless consumer closed the account due to fraud and has given permission to transfer certain item(s) to a new account. If an account is reopened to process a specific transaction, financial institutions should ensure controls exist to document and maintain the customer’s authorization. In the case of a deposit posting to a closed account, controls should ensure the account is closed after the transaction is processed. As always, be sure your deposit agreement addresses closing accounts and the circumstances of reopening.

Just as there are plot twists in Hamlet, so it goes with the CFPB’s Circular 2023-02, as the agency didn’t opine on how to handle accounts that are closed by the institution vs. the consumer - such as those accounts at a zero balance or where money was left owed to the financial institution. So as with many other CFPB circulars, there is always room for interpretation and leaving more questions than answers.

For more information see the below link:
https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2023-02-reopening-deposit-accounts-that-consumers-previously-closed/

Authored by: Marianne Giles, AAP, NCP