Federal Court Sends Excessive Overdraft Fees Plaintiffs to Arbitration

Chicago, ILOn May 18, the District Court for the Northern District of Illinois ruled that two of the three named plaintiffs in Page v. Alliant Credit Union could pursue their claims only through arbitration. This ends their participation in a class action bank overdraft fees lawsuit. The lawsuit alleges that Alliant charged insufficient funds fees even when there was enough money in their checking accounts. Unchallenged, the decision would seriously dim their chance of prevailing against the credit union.

So, the battle moves to a new front. Rather than the problem of excessive bank overdraft fees, now the issue is the enforceability of the changes to their account agreements that force arbitration.

Excessive bank overdraft fees

As set out in the plaintiffs’ First Amended Complaint, the substantive issue is the credit union’s practice of using a customer's "available" balance rather than the customer's actual or "ledger" balance to prompt an overdraft or non-sufficient funds fee.

The ledger or actual balance refers to the full amount of all deposits in an account. The available balance of an account is calculated by deducting pending debits and deposit holds. Consequently, the available balance can be lower than the ledger balance. This lawsuit, like many others over the past several years, challenges the credit union’s' practice of charging fees based on the available balance even when there is enough money in the account as calculated under the ledger balance method. Page and the other plaintiffs claim that this practice is inconsistent with how the credit union describes the circumstances under which overdraft fees will be assessed in the customer agreements that they signed on opening their accounts.

Many excessive overdraft fee lawsuits have had some success in recent years. Courts have been especially receptive to the argument that the customer agreements are ambiguous, and so should be viewed in the light most favorable to the plaintiff.  As a result, most credit unions ultimately opt to settle rather than fight the lawsuit.

The latest countermove on behalf of the banks and credit unions has been to amend their customer agreements to require that disputes be resolved through arbitration. For a variety of reasons, arbitration consistently favors the bank. Many consumers simply give up rather than pursue that process.

The problem is that accountholders, like Alicia Page, are often unaware that the terms of their accounts have changed. They have no idea that they were required to take affirmative action to keep the change from becoming effective or that there was a deadline by which they had to act – that is, until the overdraft fees began to mount.

Are the arbitration amendments enforceable?

In 2012, the U.S. Supreme Court upheld the enforceability of arbitration agreements, even when that effectively ends a plaintiff’s right to participate in a class action lawsuit. The question in Page is this: is it unconscionable to enforce the arbitration provisions in the accountholder agreements if the changes were effectively “slipped by” unsuspecting consumers?

Alicia Page and the other plaintiffs, admittedly, didn’t read the notice, which described the amendments and which arrived in the mail. It’s tough to make a legal argument out of that, but it describes common human behavior. Who doesn’t throw away at least some of the nearly endless supply of junk mail that arrives from the bank – or delete any electronic mail that didn’t go to the Junk folder, in the first place?

The District Court was not swayed, however, noting that, “one cannot accept a contract and then renege based on one’s own failure to read it.” It will not be surprising to see an appeal.

Arguments to support the position that the way that accountholders were notified of the changes was unfair

There are a couple of different ways that attorneys in other lawsuits in other jurisdictions may argue that the method by which consumers were notified of the amendments to their agreements was unconscionable. The argument shifts from substance to process. Following are three possibilities that may or may not be applicable, depending on the specific facts of the case:

• It is unconscionable to infer that one party consents to a change in the terms of a contract from that party’s silence. This is a general contract principle that is subject to many exceptions. Under Illinois law, one exception arises when the parties already have a business relationship. In other jurisdictions or where the facts make the existence of a prior relationship seem tenuous, this argument might have more weight.
• It is unfair to infer consent to a change when there is a great difference in bargaining power or financial sophistication between the two parties.
• It is unconscionable to infer consent when the document describing the change contains multiple links or references to documents that are not readily accessible to the consumer. The argument might be made that the entire agreement, both before and after the changes, should be provided to the consumer.

Above all, and even though the effort can be burdensome, bank and credit union customers must take on the task of reading and understanding the contracts to which  they agree. Failure to do so invites a nasty surprise.