A rulemaking petition filed with the Consumer Financial Protection Bureau said the agency should close a regulatory “loophole” allowing banks to quietly lower the savings rate they pay on certain deposit accounts.
In the petition, which was posted Tuesday, Kelly Subbaiah said the Truth in Savings Act currently authorizes the CFPB to enact regulations requiring a clear disclosure of the interest rates payable on deposit accounts.
Under the act, any advertisement related to annual percentage yield, or APY, offers must clearly disclose “the period during which such annual percentage yield is in effect” and banks must notify customers when lowering their APY. However, under Regulation DD, the implementing regulation of the Truth in Savings Act, Subbaiah said those requirements are only applicable to fixed-rate accounts and not to variable-rate accounts, calling it a “perhaps unintended” loophole.
“This loophole has had the effect of allowing bad actors to use bait-and-switch tactics to lure consumers into opening accounts by offering high APYs and then lowering the APY without any notice, leaving such consumers unaware that their deposits are no longer earning the interest rates they believed they were,” Subbaiah said.
Subbaiah asked the CFPB to consider amending Regulation DD to require that banks “provide notice to consumers of interest rate and corresponding APY changes at least 10 days before the changes take effect.”
Subbaiah notes that the “bait-and-switch” tactics are the basis of a proposed class action against Axos Bank pending in California federal court. The suit filed in December claimed that UFB Direct, an online-only division of Axos, has made a practice of persuading consumers to open certain savings accounts by advertising them as the “highest-yielding” option and as having a “tiered variable rate” — then changing the terms.
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