What Are Deceptive Bank Practices?
Some banks are taking actions that are deceptive and illegal. These illegal actions are known as Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). Many of these affect your credit rating or cost you money.
The National Credit Union Administration says, UDAAP “can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace.” (1)
Following several high-profile bank cases involving UDAAP, the New York State Department of Financial Services issued an industry letter in July 2022. The letter alerts financial institutions of its intent to evaluate their practices regarding overdraft and insufficient funds fees. (2)
The federal government has many laws regulating banks. Other states, in addition to New York, may also be pursuing this type of action to protect consumers.
Cases of UDAAP in the News
Reports on cases involving UDAAP by banks and financial institutions appeared in the media in 2022. One pertains to improper overdraft fees, the other to fraudulent accounts.
A class action lawsuit alleges Trustco Bank broke the law when it charged customers multiple overdraft or insufficient funds fees for a single transaction. Trustco is alleged to have reprocessed individual transactions to charge customers the additional fees. (3) Those insufficient funds fees were pure profit for the bank.
In another highly publicized case, U.S. Bank was fined $37.5 million by the Consumer Financial Protection Bureau (CFPB) for “illegally accessing its customers’ credit reports and opening checking and savings accounts, credit cards, and lines of credit without customers’ permission.” (4) The bank took these actions to boost sales. (5)
These are by no means the only deceptive financial practices consumers may fall victim to.
If you or a loved one have suffered from deceptive bank practices, contact us today to understand your legal rights.
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Types of Illegal UDAAP
These are other illegal UDAAP you should be aware of:
- Improper credit checks that damage credit scores — Credit scores are impacted when you apply for a loan or a credit card. These types of inquiries are known as “hard” inquiries. If your bank makes multiple hard inquiries, with or without your knowledge, your credit score could take a hit. (6)
- Charging hidden fees — Some financial institutions charged fees that were unexpected, and excessively high. It was unclear why other fees were imposed. Examples of these hidden fees are card replacement, online bill pay, mobile deposit, and savings withdrawal fees. (7)
- Manipulation of debit processing to maximize overdraft charges — A case in point is the Trustco lawsuit. A consumer watchdog group explains how Trustco is suspected of reprocessing items that were already charged fees as “a new and unique transaction subject to a new set of overdraft fees.” (8)
- Assessing unauthorized charges — Examples of this include if you find a charge on your card or account for purchases you did not make. Or if your bank makes a math error and processes a charge for the wrong amount. (9)
- Misrepresenting the interest rate — Beam Financial Inc., the operator of a mobile banking app was banned from operating any mobile app in the future. One reason for the ban, among others, was it “failed to give users the high interest rates the company promised.” (10)
- Illegally increasing the interest rate — An example is if the interest rate on your credit card suddenly goes up. Banks can raise the interest rate on your credit card, but not without providing written notice of the change at least 45 days in advance. (11)
- Failing to post payments or deposits to accounts — Electronic processing helps debit transactions clear quickly, but it does not mean your deposits also will. Let’s say your bank fails to post a deposit to your checking account. This causes automatic payments, withdrawals, or debits from your account to bounce. The bank is then sticking you with insufficient funds fees.
- Transferring funds between accounts without your approval or knowledge — In one recent instance, “Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds, and sent payments to creditors based on out-of-state garnishment court order.” (12)
- Running bait-and-switch schemes — This can happen when you go online and see a bank is offering a great deal on certificates of deposit (CDs). You must go into their location to purchase the CD. Once you arrive, they try to sell you a completely different product. (13)
For these reasons, laws exist to prevent financial institutions from implementing UDAAP. Some of these laws are specifically targeted at overdraft fees.
Improper Overdraft Fees
Overdraft protection is a service where your bank pays a transaction (check or other item) even if you do not have sufficient funds in your account at the time it is processed. The bank then charges you a fee for this service. (14)
In the past, banks charged you a flat fee for each overdraft transaction, even for the slightest infraction. Banks have used that privilege to charge multiple fees for a single transaction. (15)
Because of the excessive use of overdraft fees, Congress enacted the Overdraft Protection Act of 2021 was by. This act prohibits UDAAP and specifies how overdraft fees are to be applied. (16) (17)
Consumer Protection Legislation
A critical piece of consumer protection legislation is the Dodd-Frank Act. It not only made UDAAP illegal for financial institutions, but granted industry rule-making authority to the Consumer Financial Protection Bureau (CFPB). CFPB can take enforcement action, as well as impose fines against offending financial institutions. (18)
Regulation, supervision, and enforcement of consumer protection legislation also involves several other government agencies. Among these are the Federal Trade Commission and the Federal Deposit Insurance Corporation. (19) (20)
The Office of the Comptroller of the Currency also plays a role, since it supervises national banks and federal savings associations. (21)
Despite consumer protection laws, you can still be harmed when financial institutions make multiple hard credit inquiries on your account even though you did not apply for a credit card or a loan. These multiple hard inquiries can lower your credit scores.
More serious harm can be done when your personal information is accessed illegally, then used to open sham accounts. This is what happened in the U.S. Bank case.
Additional Consumer Protection Laws
Other laws have been enacted to help further protect consumers and curtail fraudulent practices. Among the laws fraudulent practices may breach are the:
- Consumer Financial Protection Act.
- Fair Credit Reporting Act.
- Truth in Lending Act.
- Truth in Savings Act.
Of particular interest is the Fair Credit Reporting Act (FCRA).
Improper Credit Checks
FCRA protects your personal information by limiting who can access the information and how it can be used. (22)
Typically, government agencies, lenders, debt collectors, utility companies, landlords, and insurance companies are permitted to access your credit report for specific purposes. For other purposes, your permission is required. (23)
Here are some examples of improper credit checks: (24)
- An employer or potential employer checks your credit without your permission.
- Someone looking to file a lawsuit against you wants to determine the value of your assets.
- A creditor checks your report after you have paid off your debt, or when you are not bound by a contract on an account.
- Someone wants to use your credit report as evidence against you in a legal proceeding not related to your credit, such as a divorce or criminal case.
If you have suffered from deceptive bank practices, contact us today for a free case review.
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If your credit information has been improperly accessed, or a bank has charged you illegal fees, you should hire an experienced attorney to help you explore your legal options.
An attorney can help put an end to your bank or financial institution’s unfair practices by filing a lawsuit on your behalf.
To win your case, your attorney needs to show the court the bank’s actions were unfair. To qualify as “unfair”, the act must be likely to cause substantial injury, the injury is not reasonably avoidable, and the injury outweighs any benefits. (25)
In most cases, these are class action lawsuits because the bank has also harmed many other individuals. Weitz & Luxenberg is currently filing multiple lawsuits against banks for these types of activities.
How W&L Can Help
Weitz & Luxenberg proudly helps clients protect themselves from businesses that victimize them. Here is a sampling of our consumer protection case successes: