Panel Declines Consolidation of Credit Union Lawsuits

Edwardsville, ILIt’s not just the banks who are under fire for excessive overdraft fees; credit unions also face allegations that they used illegal means to increase profits from overdraft charges. Although credit union overdraft lawsuits are moving ahead, they will not do so as a consolidated motion, after a judicial panel ruled the lawsuits would have to move forward separately.

The number of lawsuits filed against credit unions is growing, according to the Credit Union Times (2/9/16). In the past six months, at least 15 credit unions have been hit with class-action lawsuits related to the practice of charging overdraft fees. The plaintiffs moved to consolidate 11 of those class-action lawsuits, but the Judicial Panel on Multidistrict Litigation declined to consolidate the lawsuits, finding that they did not have enough in common to move forward together.

Part of the problem is that the defendant credit unions are run in at least nine different states, meaning each is governed by different breach of contract laws. Furthermore, because there are around 6,000 credit unions in the United States, the panel ruled that the number of lawsuits could grow dramatically, moving the complexity of the proposed multidistrict litigation beyond anything manageable.

Consolidation of lawsuits into a multidistrict litigation (MDL) is done to prevent overlap in discovery. A rejection of an MDL is not a comment on the merits of the lawsuit, rather a comment on whether the various lawsuits share similar questions of fact. Although the common question involves excessive overdraft fees, different credit unions may have different policies and procedures on charging such fees, making it difficult to consider all lawsuits at once.

“Each action is brought against a different credit union on behalf of a different class,” the panel ruled. “There is no overlap among the plaintiffs, the defendants, or the putative classes. Discovery in each action will be chiefly, and perhaps even entirely, unique to that action."

Lawsuits filed against credit unions allege the financial institutions used illegal practices to increase profits from excessive overdraft fees, including charging overdraft fees when customers had enough money in their account to cover the transaction. One such lawsuit was filed against MidFlorida Credit Union, and alleges the credit union used an “artificial internal calculation” based on anticipated debits and deposits that have not yet occurred - rather than the actual balance in the account - to determine if there are enough funds to cover a debit transaction.

The plaintiff in the MidFlorida lawsuit alleges she was charged a $30 overdraft fee, even though she had enough money in her account to cover a debit transaction.

Other lawsuits accuse financial institutions of reordering transactions from highest to lowest to push consumers into debt more quickly, also increasing the amount made from overdraft fees.

The MidFlorida lawsuit is Fry v. MidFlorida Credit Union, case no. 8:15-cv-02743, in US District Court, Middle District of Florida, Tampa Division. The denied multidistrict litigation was In Re: Credit Union Checking Account Overdraft Litigation, MDL No. 2684.