The bigger story, though, may be how younger and lower-income customers continue to be victimized by credit unions and banks for the sake of institutional profits. They’re easy pickings, which is why information and legal activism is important.
Two Sets of Books?
On December 18, 2014, Ms. Salls had $318.17 in her checking account when she made a debit card purchase of $37.18, leaving her with a positive balance of $311.55. Despite the fact that she had enough money in her account to cover the transaction, she was assessed a wrongful $30 Uncollected Funds fee. A day later, on December 19, 2014, she had $281.55 in her checking account when she made a debit card purchase for $27.97, leaving her with $253.58 in her account. Again, despite the fact that she had enough money in her account to cover the transaction, she was assessed another wrongful $30 Uncollected Funds fee. These were, reportedly, not isolated events.
The secret is that, although the $318.17 and $281.55 figures reflect the “ledger balance” that Ms. Salls would have seen as checking her balance, DFCU calculated her balance according to a different method, which led to a lower number. The credit union’s calculation left out pending deposits but subtracted pending debit card transactions. It is a method designed to produce the lowest balance possible.
Many customers would assume that, in the age of electronic banking, both sorts of pending transactions would be treated the same way. This, at least, would eliminate unpleasant surprises.
The Consumer Financial Protection Bureau has been watching this maneuver, especially when coupled with the practice of batching transactions and processing debits in highest to lowest order:
“Examiners also observed at one or more institutions the following sequence of events after the institutions switched balance-calculation methods: a financial institution authorized an electronic transaction, which reduced a customer’s available balance but did not result in an overdraft at the time of authorization; settlement of a subsequent unrelated transaction that further lowered the customer’s available balance and pushed the account into overdraft status; and when the original electronic transaction was later presented for settlement, because of the intervening transaction and overdraft fee, the electronic transaction also posted as an overdraft and an additional overdraft fee was charged.”
Violations of State and Federal Law
The Salls Complaint alleges that DFCU violated the law in several different ways, including breaches of contract law, tort law, state consumer protection laws and federal Electronic Fund Transfers Act. The Complaint describes breach of contract (both the opt-in agreement and the account agreement), breach of the covenants of good faith and fair dealing, unjust enrichment and violation of the federal Electronic Fund Transfers Act, otherwise known as Regulation E.
The last may have the most teeth. Enacted in the wake of the global financial and banking crisis of 2008, this regulation requires full disclosure of banking fees and the affirmative consent of consumers to those banking arrangements. It is designed to protect consumers engaged in the electronic transfer of funds. This includes the use of debit cards, ATMs and automatic withdrawals from bank accounts.
The allegation in the Complaint is that the complicated difference between the ledger balance and the bank’s calculation of available balance was not clearly disclosed.
Lower-Income Customers Likely Victims
Although DFCU appears to have made only a small amount of money from Brandi Salls, overdraft fees charged in similar situations are big money-makers for banks and credit unions.
READ MORE CREDIT UNION EXCESSIVE OVERDRAFT FEES LEGAL NEWS
This looks like an ugly situation of financial institutions exploiting those least likely to have the means to fight back. In the long run, the best solution may be greater bank and credit union oversight by regulators like the Consumer Financial Protection Bureau. In the short term, however, the remedy may be class action lawsuits like that filed by Brandi Salls.