NSF Liability Hinges On A Few Key Words

Overdraft and NSF litigation is all the rage.  A recent decision by New York’s federal district court In Manhattan demonstrates how subtle differences in account agreements can make all the difference when it comes to potentially costly class action litigation.  

The following language was applicable to Municipal’s FasTrack Checking Account as outlined in its account agreement.

“NSF Fee: Each time an ACH debit request or bill payment you authorize, or check (share draft) you draw, is presented and returned as unpayable for any reason, a $32.00 service charge will be assessed.” Thompson v. Municipal Credit Union, 2022 WL 2717303, at *6 (S.D.N.Y., 2022)

Municipal, like so many larger credit unions, was sued by a member who claimed that the credit union violated the terms of its account agreement every time it charged an NSF fee for multiple ACH presentments for the same item.  In all this litigation, the legal issue is not whether multiple NSF charges can be levied but whether or not the language adequately explains when multiple NSF fees will be charged.  The good news is that a fair amount of case law involving this issue now provides some bright line guidance of which the Municipal case is the latest example.

Last week, a court dismissed the lawsuit against Municipal.  Its reasoning is worth examining for anyone responsible for making sure your account agreement adequately protects your credit union.  First, the court found that the agreement was structured in a way that made it clear to members which fees applied to which products.  For example, the above cited language was included specifically in the description of the FastTrack Account product.  

Secondly, plaintiff argued, as is typical in these cases, that the account agreement was ambiguous.  As I explained in this blog, they contend members are not given adequate notice that multiple NSF fees may result from a single merchant transaction because merchants may make multiple ACH payment requests for the same transaction or item.  Municipal’s language doesn’t even refer to an item.  It is a model of grammatical simplicity that would warm the heart of any 5^th grade English teacher. 

“The Court need not consider whether the “per item” language is ambiguous. The NSF language applicable to FasTrack Checking Accounts is unambiguous and permits Defendant to assess a new fee each time a debit request or check is presented for payment, regardless whether that same debit request or check previously has been presented for payment and rejected for insufficient funds.”

Incidentally, this case was decided within days of DFS’s Overdraft/NSF Guidance imposing more disclosure requirements on state charters than would otherwise be required.  For example, state charters are now expected to provide NSF disclosures with each account statement and a direct point of contact. 

There is a lot going on in this space both legally and regulatorily, so this week please join yours truly and my Compliance Compadres as we discuss the latest developments in overdraft and NSF fee regulations, litigation, and legislation on Wednesday July 27^th at 10:00am.  You can register at 2022 First Look Webinar: Overdraft Under the Microscope.