Class actions lawsuits targeting credit unions that impose multiple non-sufficient funds (NSF) charges on a single “item” and/or that assess overdrafts (OD) fees on certain debit card transactions are beginning to resurface by plaintiff law firms.
Three things of note standout when these class actions suits are considered at their highest level:
1–They are being filed against financial institutions of all sizes
2–These are not “one hit and the pains are over” scenarios. Financial institutions are being named in different lawsuits for different types of activities in different class periods.
3–To be forewarned is to be forearmed.
One of the predominant allegations made in these class action lawsuits is that multiple NSF fees are charged on the same transaction, in violation of the institutions’ account terms. A complaint’s allegations often claim that the credit unions account agreement documents do not permit multiple NSF fees or that those agreement’s terms are too vague to allow financial institutions to rely upon its account rules as a defense.
Another common allegation made relates to overdraft fees charged for Regulation E qualifying debit card transactions. This supposedly offensive practice is often described in the filed complaints as “Authorized Positive, Purportedly Settled Negative Transaction” or “APPSN Transactions,” and allegedly occurs when an accountholder uses her or his debit card to make a transaction. It is claimed that the credit union authorizes the transaction upon a sufficient account balance, but by the time the payment order is settled, the account will not support the transaction, perhaps because of intervening account activity. Again, the plaintiff’s’ basic claim is that they were misled by the institution’s account terms or disclosures and that the imposition of an overdraft fee is consequently improper.
Plaintiffs are also alleging that multiple overdraft fees are charged on a single transaction each time an item is processed for payment. The claim allegations appear to be largely centered on ACH transactions and overdraft fees being charged for each time an ACH debit transaction is processed, returned, and then is reprocessed. A single item might be processed up to three times. This means, depending on your system parameters, that possibly three overdraft fees could be assessed for a single item. Plaintiffs argue these are consequently multiple fees on the “same transaction.”
A key concept to remember is that each credit union has complete control over its own account terms. Credit unions should take proactive steps to limit their exposure to these types of class action lawsuits. First, operational personnel and experienced counsel should closely examine the account terms and disclosures against actual operations for accuracy. Second, account terms and disclosures should be reviewed for “absolute” clarity to enable members to understand how NSFs and overdrafts are managed. Third, repeat steps 1 and 2 on a recurring basis. Even minor operational changes, or inadvertent changes to practices (formal or informal), can make a difference in how NSF and OD charges are disclosed to a member, resulting in the disclosures diverging from practices.
To-date we are not aware of any Nebraska credit union that has been named in any Class Action lawsuit regarding NSF or Overdraft charge practices. We are continuing to monitor the situation very closely with hopes of better discerning what strategies work best against these class action lawsuits targeting credit unions.
CUNA Mutual Group has issued several Risk Alerts on the subject and can be accessed below: