Overdrafts Continue To Trip Up Financial Institutions

March 26, 2018 at 9:20 am 1 comment

Overdraft litigation is alive and well. Recently, the United States District Court of New Hampshire refused to dismiss a punitive class action brought against Northeast Credit Union involving claims that the credit union did not adequately disclose the way in which it determines how much money is available in a member’s account. As a result, the member claims that persons are made liable for overdraft charges to which the credit union is not entitled. This litigation is by no means unique to credit unions but it does represent an ongoing problem that can be mitigated if the appropriate disclosures are in place.

The facts in Walbridge v. Northeast Credit Union, No. 17-cv-434-JD, 2018 BL 77521 (D.N.H. Mar. 07, 2018) are fairly typical. Walbridge alleges that on March 15, 2016, he had an actual balance in his Northeast checking account [*2] of $111.09. He made a debit card payment of $32.43, which left a balance of $78.66. Northeast, however, determined that he had insufficient funds and charged an overdraft fee of $32.00. Northeast then assessed additional overdraft fees of $32.00 on March 29 and March 30, 2016. Walbridge contends that the overdraft fees were improper.

As I explained in this earlier blog, there are two basic methods for calculating fund availability in accounts. The actual or ledger balance method refers to all money currently in a member’s account or the available method which refers only to those funds actually available for use by the member minus pending debits. Almost all these cases argue that the actual balance method is deceptive or not adequately disclosed by the financial institution since it makes a member think that they have more money available for debit transactions than they actually do.

But remember, no court has argued that one method is legal and another method is not. What is getting credit unions in trouble is that they fail to adequately disclose how their accounts are calculated. For instance, contrast this case with a ruling by a Federal court in DC which rejected claims that NASA Federal Credit Union’s Account Disclosure Statements were ambiguous.

The bottom line is this: Courts have come to differing conclusions based on very similar language. However, one commonality is that the more accurately and plainly you can describe your balance calculation method, the safer you will be. Given the continuing presence of this litigation, I would once again take a look at your disclosures and make sure they accurately describe the method your credit union uses and puts your member on notice when overdrafts are charged.

There’s Big Money In Credit Freezes

This just doesn’t seem right to me. Krebs on Security reported last week that nearly 20% of Americans froze their credit after the Equifax data breach at a collective cost of $1.4 billion to the consumer. That’s right, Equifax made more than a billion dollars off of a breach of its systems. Interestingly, Krebs also reported that the younger you are, the more likely you were to freeze your credit. 32% of millennials, 16% of GenExers, and 12% of baby boomers froze their credit. I would have reversed these numbers.

Entry filed under: Compliance, Legal Watch. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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