Class Actions Based on Overdraft Fees on the Rise

Miller & Martin PLLC Alerts | June 19, 2019

As a word of caution, the plaintiffs’ bar is filing a wave of class actions against credit unions and banks based on the assessment of overdraft fees. Some cases challenge practices, such as high-to-low sequencing of transactions, that plaintiffs argue generate excessive overdraft fees. Frequently, the cases focus on a scenario where a transaction is authorized based on a positive balance at the time the member uses a debit card, but later results in an overdraft fee based on a negative balance when the merchant presents the transaction for payment. The lawsuits also dissect form agreements and disclosures for any terms – such as “balance,” “available balance,” “presentment,” or “enough funds” – that conceivably could be ambiguous or misleading to lay members.

One such case, filed against Navy Federal Credit Union, recently settled for $24.5 million.  Further increasing risk, carriers may deny coverage based on exclusions written into liability policies. Miller & Martin attorneys are currently defending similar claims filed by an aggressive and well-funded Nashville law firm that, partnering with out of state firms, has filed a series of cases against financial institutions in Tennessee, both credit unions and banks. A couple of years ago, our firm successfully tried a case against this same firm involving a different type of claim.

Now is a good time to review your financial institution's liability policies and its overdraft fee practices, agreements, and disclosures. 

Please contact Brad Harvey, David Kesler or your Miller & Martin attorney to assist with reviewing your member agreements and disclosures concerning the charging and timing of overdraft fees to determine if they present any of the same problems raised in these lawsuits.