The Complaint sets out a fairly straightforward contract claim – the credit union charged her overdraft fees; the charges were contrary to the terms of her “Membership and Account Agreement” and related documents; therefore, the credit union’s practices are a breach of contract under New Jersey law. The sticky part of this argument has to do with when the negative balance is alleged to have occurred and whether her monthly account statement is the right measuring stick.
It is part of a continuing battle about widespread bank procedures governing when debits and deposits are credited. These practices are often contrary to what people understand about when they have funds available. Ultimately, the issue may be whether the credit union’s documents and procedures were deceptive or misleading.
Excessive bank fees
On several occasions, Ms. Hickmond claims, she was assessed a $30 overdraft fee, despite the fact that her account never went negative even after the transaction that supposedly caused the fee was posted. For example, on October 23, 2020, she was charged a $30.00 overdraft on a $230.45 automatic clearing house (ACH) transaction that was made when her account balance was $327.67.
After the ACH withdrawal was subtracted from her account, she was left with a balance of $107.67. The credit union then subtracted an additional overdraft fee of $30.00, despite her account having had sufficient funds to cover the transaction.
The account agreements
More documents and testimony will likely be submitted at trial, if the lawsuit goes to trial, but the Complaint offers sections of Ms. Hickmond’s account agreements as preliminary evidence. According to the checking account contract documents, “If, on any day, the available funds in your share or deposit account are not sufficient to pay the full amount of a check, draft, transaction, or other item, plus any applicable fee, that is posted to your account, we may return the item or pay it, as described below... If we pay these items or impose a fee that results in insufficient funds in your account, you agree to pay the insufficient amount, including the fee assessed by us, in accordance with our standard overdraft services or any other service you may have authorized with us, or if you do not have such protections with us, in accordance with any overdraft payment policy we have, as applicable.’”
So far, we have no information from the credit union about how it interprets or administers this promise to accountholders. However, information about common banking practices that has accumulated through several years bank of bank overdraft lawsuits suggests that the procedure for clearing debits is not necessarily straightforward.
Two common banking practices stand out:
- Different ways of calculating “available balance” which is what a banking institution often uses in determining whether an overdraft has occurred, and “ledger balance’– which is what the accountholder sees; and
- A two-step clearing process, known “Authorize Positive Purportedly Settle Negative” or “APPSN” transactions.
Available balance versus ledger balance
Banks and credit unions may determine whether an account balance was negative (and thus subject to overdraft fees) by deducting pending debit card items. This “available balance” is often less than the balance reported in monthly statements or when accountholders check their balances online. What they see is known as the “ledger balance.”
Account holder agreements often appear to describe the ledger balance method. They can be ambiguous and difficult to understand; they may refer to documents to which the customer does not have access; and they are often unilaterally updated by the bank, without ever being read by the average account holder. They may appear to refer to the ledger balance when, in fact, the institution uses the lower available balance to trigger fees.
When a debit card transaction is authorized on an account, a financial institution immediately reduces the consumer’s checking account balance in the amount of the transaction and sets aside funds to cover it. The customer’s displayed “available balance” in the account reflects that subtracted amount.
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Neither if these issues appear to have surfaced yet in Hickmond, but they may. In excessive overdraft fees lawsuits, complexity is often the defendant’s move of choice.