Are Your Overdraft Policies Deceptive?
Further regulation of overdraft fees is one of the top regulatory issues to be addressed by the CFPB in the coming months. In fact, I bet that these regulations will be as important to credit unions as NCUA’s pending Field of Membership (FOM) proposal. For example, I wouldn’t be surprised to see a requirement that members affirmatively opt in to all overdraft protection plans, not just debit transactions. It’s even possible that we will see restrictions placed on the size of overdraft fees.
But even without these changes, plaintiff’s lawyers are already zeroing in on overdraft practices. I’ve been paying attention to a couple of cases and my most practical takeaway is that your account agreements should clearly explain your overdraft practices and your overdraft procedures should be consistently implemented. This might sound obvious, but humor me for a second.
On December 9, a New York State Court approved a settlement between HSBC Bank and a class action group of bank customers who alleged that the bank’s overdraft policies violated New York Law against deceptive practices as well as the terms of its account agreement. The core of the complaint is language in the bank’s account agreement in which it explains to members that it “generally pays the largest debit item drawn on a depositer’s account first.” In fact, the plaintiffs allege that HSBC used software which made sure that debits were always paid from highest to lowest. HSBC is going to pay $30 million to settle the claim while admitting no wrongdoing.
The lawsuit is not unique to HSBC. Similar claims have been brought across the country. What intrigues me so much about these lawsuits is that there is nothing in regulation dictating the order in which debit transactions must be drawn from accounts. I’ve heard some awfully good arguments for policy withdrawing the highest debits from an account first, as well as arguments for simply debiting accounts in the order in which they come in. The key point is that regardless of what procedure you end up using, your member has a right to have those procedures accurately explained. These suits are becoming quite popular and it’s possible that a lawyer could be reading your account agreements to see if your practices are aligned with them.
On that note, have a nice weekend.