What happened at GreenState
GreenState Credit Union, according to the complaint, deducts money from a customer’s account at the instant a debit card is used for a purchase. Those funds are immediately set aside to pay for the purchase when it settles, which is when the funds are actually transferred to the seller’s account. Several days may pass between the time a transaction is authorized and the day that it settles.
If subsequent withdrawals, made days after the initial transaction, push the purchaser’s account into negative territory, the credit union reaches back in time to assess an overdraft fee on the initial debit card transaction as well as any following transaction that was authorized despite the insufficient funds. The actual mechanics of this sleight of hand sound even shadier.
According to the complaint, during its nightly batch-posting process on the date the transaction actually settles:
“GreenState releases the hold placed on the funds for the transaction for a split second, putting money back into the account, and then it re-debits the same transaction moments later. This secret step allows it to charge overdraft fees on transactions that never should have been subject to them.”
This “secret step” is actually no mystery. It is a technique practitioners sometimes refer to as “Authorize Positive Purportedly Settle Negative” or “APPSN” transaction. It is well-known to lawyers who bring lawsuits on behalf of consumers who feel cheated by their banks and credit unions.
It is the source of considerable revenue for banks and credit unions. It has also been under scrutiny by the Consumer Financial Protection Bureau since at least 2015. Moreover, APPSN transactions are also arguably prohibited by GreenState’s own consumer account agreements.
When is “enough money” not enough?
In its online explanation of overdraft fees, GreenState Credit Union makes the following simple statement: “An overdraft occurs when you do not have enough money in your account to cover a transaction, but GreenState pays it anyway so that the transaction is not immediately declined.”
Good enough – no one wants the embarrassment of a declined transaction. That seems fair and straightforward. The problem lies, however, in the meaning of the words “enough money.”
To many accountholders, those two words mean the reported balance, sometimes also called the ledger balance or just the account balance. It is the number depositors see when they check their bank statements.
In practice, however, many banks and credit unions use a different, lower number. They assess overdraft fees when a customer’s “available balance” goes negative. The available balance is the reported balance less any holds that the bank has placed on a deposit or to pay a transaction that has been authorized but has not yet settled. An accountholder’s available balance is often less than the number reported on a bank statement.
To the customer, “enough money” refers to the account balance. To the bank, “enough money” refers to the available balance. By the bank’s calculation, an account may not have “enough money” even when the account holder thinks that everything is fine. That’s when the bank awards itself an overdraft fee, usually in the neighborhood of $35.
No one could know this from GreenState Credit Union’s deceptively simple statement about when overdrafts occur. Because neither the midnight batching routine nor difference between “account balance” and “available balance” are disclosed, checking account customers cannot protect themselves from unwelcome fees. To get zoological for a moment – they are sitting ducks, sheep waiting to be fleeced.
A widespread problem
READ MORE EXCESSIVE OVERDRAFT FEE LEGAL NEWS
For example, TD Bank agreed to settle several consolidated class action overdraft fee lawsuits for $70 million. Bank of America agreed to pay $66.6 million to settle a similar lawsuit that claimed it had violated the National Bank Act. In late 2019, Ent Credit Union in Colorado Springs agreed to settle a class action overdraft fee lawsuit for an undisclosed amount of money.
None of these is dispositive of Catherine Razavi’s lawsuit, of course. The overall message, however, is that checking account customers who believe that they have been mistreated by their banks do not simply have to “put up” with small-scale but pervasive cheating. Help is often available through the legal process.