It's Alive! Class Action Lawsuit against Capital One Bank is Back On

New York, NYTawanna Roberts's excessive bank overdraft fees lawsuit had all the familiar hallmarks. She claimed that she had a positive balance at the time she made the transactions that triggered the penalties, and that those penalties were made worse by Capital One's practice of reordering transactions to maximize what it could charge.

But for a while, it looked like all was lost. The District Court decided in May that the bank had that right to assess those fees. Then the Second Circuit Court of Appeals reversed breathing new life into Ms. Robert's case and the class action lawsuit that was building around it. This is good news, especially for plaintiffs who are not millionaires and who continue to get pummeled with excessive bank overdraft fees.

What does "pay" mean?

At the risk of disappearing down a legal rabbit hole, the lawsuit focuses on what the word "pay" means in Capital One's Deposit and Electronic Funds Agreements, to which Ms. Roberts agreed when she opened her checking account and applied for a debit card. More specifically, it was about whether "payment" occurred when the bank authorized the transaction (in which case Ms. Roberts wins) or when the bank actually settled with the merchant, which is later in which case the bank wins).

Anyone who has ever been puzzled about whether a checking account balance reflects some past, even long past, transaction can understand the problem.

Pouring salt in the wound, Capital One also appears to have reordered the sequence in which it cleared Ms. Robert's transactions to maximize the number of overdraft fees it charged, a practice lawyerly explained in footnote1 to the Second Circuit's opinion.

The District Court held for Capital One and tossed the lawsuit out. The Appeals Court was not so sure, and so permitted the lawsuit to continue.

Dig those bank agreements out of your bottom drawer

This would be a good idea for Capital One customers and also for other checking account customers, since Capital One's contractual language is probably not sui generis. The Second Circuit, which covers New York, Connecticut and Vermont, could be a very good place to file a lawsuit over excessive bank overdraft fees. If you can sue in New York, you may also be able to recover under New York consumer protection laws. It looks like bank customers may be back in the legal game when it comes to contesting overdraft charges.