This is an unusual position for credit union defendants to take. It appears to be an unusual case, since the cited culprit is described as a software glitch. But the speed and completeness of the resolution in favor of affected customers says something about the credit union industry’s new approach to handling excessive overdraft fees lawsuits.
NELSON V. ENT
The class action Complaint alleges that Ent Credit Union routinely assessed overdraft fees on transactions that did not overdraw an account, assessed two or three insufficient funds fees on the same transaction and misled customers about these practices, all in violation of Colorado law.
The practices that resulted in these excessive fees were not an accident, but depended on the much-discussed distinction between “available account balance” and “actual ledger balance,” which the Consumer Financial Protection Bureau highlighted as a deceptive practice, as long ago as the winter of 2015.
For example, Ashley Brymer’s account was assessed a $25 OD Fee on a $6.51 debit card transaction from Sonic restaurant on March 22, 2018, for a transaction that settled that day. However, that transaction was authorized into a positive account balance prior to March 22, 2018. The same fact pattern occurred with respect to two debit card transactions for which she was assessed OD Fees on July 31, 2018. Other customers had similar experiences.
This time, however Ent did not attempt, as many other credit unions have done, to justify the practice as customary, fully disclosed, and agreed to voluntarily by affected account holders.
The details of the settlement, announced in early December, remain confidential. The announcement, however, attributes the offending excess fees to software issues of which the credit union was not aware until the suit was filed.
One problem resulted from a default hold setting in its transaction processing software that allowed for a debit card transaction that triggered a “courtesy pay charge” even though the account had a positive balance at time (but was negative when Ent later processed the charge). Multiple overdraft fees on the same transaction, the credit union said, were the result of multiple attempts by merchants to collect charge payments. Maybe it’s true that Ent Credit Union was unaware that its software would produce the fees that many other credit unions have been sued over.
In any event, its CEO issued a fulsome apology and offered to refund all of the fees in question, plus interest to members who were charged during the past three years. In addition, the credit union says that it has changed both processes to avoid a reoccurrence of the issues. Mea culpa, mea maxima culpa.
WHY IS THIS RESOLUTION DIFFERENT?
Part of the difference may be due to the success plaintiffs’ attorneys have had over the past several years in representing credit union customers. This has not gone unnoticed by credit union industry groups, like the National Association of Federally-Insured Credit Unions (NAFCU), which periodically sends member institutions advisories about what to expect and how to handle overdraft class action litigation.
There are no guarantees in litigation for either plaintiffs or defendants, but this phrase stands out in recent industry advice: “Rather than continue to litigate the issues, credit unions may decide that it may be more cost-effective to settle the case even if they believe they are legally in the right.”
In other words -- don’t spend the money on prolonged litigation. Bail. Bail fast. That seems to have been what Ent Credit Union chose to do.
STATE LAW CLAIMS
What can make an excessive credit union lawsuit expensive for credit unions? The answer may be state law claims. Increasingly, class action overdraft fee lawsuits seem to rely on state law claims, including breach of contract, unjust enrichment and state consumer protection laws. The Ent Credit Union excessive overdraft fee lawsuit relied on common law breach of contract and unjust enrichment arguments as well as alleged violations of the Colorado Consumer Protection Law.
READ MORE CREDIT UNION EXCESSIVE OVERDRAFT FEES LEGAL NEWS
Many credit unions have a multi-state footprint and defending against state law claims often requires local and particularized legal knowledge. In addition many courts view cases in the light most favorable to the plaintiff and frequently decide that an agreement is not clear about fees being assessed how a member’s available balance is calculated (e.g. actual balance versus ledger balance). Preparation for trial and especially the process of discovery can become quite expensive.
For these reasons and others, many excessive overdraft fee lawsuits, especially those grounded in state law, may have encouraging prospects for early settlement.