Just what is an “Item” anyway?

September 21, 2021 at 2:06 pm Leave a comment

A former President got impeached after quibling over the definition of “is” and today CUS and banks are being sued over the definition of “item.”

That is one of the key questions confronting both credit unions and banks as they continue to make a handful of consumer plaintiff law firms wealthy because of inaccurate disclosures in their account agreements. On a practical level this means that you should review your account agreements to ensure that it actually defines what an item is. This is particularly true if your credit union is large enough to be targeted for class action litigation.

I’ve done blogs for several years now detailing how both credit unions and banks are being sued for inaccurately disclosing how account balances are determined for purposes of generating overdraft fees. For example, if your member has $50 in an account at the time she uses her debit card to pay for her Starbucks latte but 49 of those dollars are subject to pending transactions has your member been given adequate notice that an overdraft fee will be charged based on how the account balance is actually calculated?

A more recent permantation of this litigation has to do with the proper disclosure of NSF fees generated by repeated presentments for payments made by merchants using the NACHA network. Specifically, does your credit union charge a fee every time a merchant presents a transaction for payment and if so is this practice properly disclosed? In Richard v. Glens Falls National Bank, 2021 WL 810218, at *1 (N.D.N.Y., 2021,) the bank charged a separate fee every time a merchant represented an item for payment. The bank’s fee schedule disclosed that an NSF fee could be charged “per item” but did not define what an item was. As a result the account owner argued that the bank was only entitled to charge a single NSF fee irrespective of how many times a merchant presented an item for payment. 

The good news is that your credit union can avoid a similar fate by simply amending its account agreement. For example, the Navy federal credit union got a similar claim dismissed because its account agreement contained language defining what an item was and putting members on notice that they could be charged each time an item is presented for payment. Lambert v. Navy Federal Credit Union

Here is the punchline: your credit union should be having its account agreement periodically reviewed by an outside law firm, preferably one that specializes in defending against consumer class action lawsuits. Consider it an investment especially since I can guarantee you that your account agreement has been reviewed by attorneys looking to sue you over language which may comply with the latest regulations but does not reflect the latest case law. 

On that note, enjoy your day.

Entry filed under: General, Legal Watch.

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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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