The best short term solution may be for bank customers to be on the lookout for four maneuvers financial institutions use to protect the revenue they derive from excessive bank overdraft fees. A recent update notice sent to customers of Florida Credit Union is a useful example.
Why mandatory arbitration is bad news for bank customers
Arbitration tends to favor the deep-pocketed—in this case the bank or credit union. There are a variety of reasons for this, but chief among them is the cost and/or time a dispute takes for checking account customers who often have only a small amount of money at stake.
Most take the loss rather than fight it. Class action lawsuits, where costs and recoveries are shared among plaintiffs, are a practical solution. Without that option, many consumers lose the only tool they have to fight abusive banking practices.
Who really reads all this stuff?
Almost no one reads (or understands) the many pages of legalese they must sign to open a checking account. Banks count on this.
Even if a helpful bank officer explains some of the terms when the account is first opened, there is no one to do that when the notice arrives about changes in the rules.
Take it or leave it
The first issue that customers should be aware of comes only a few words into the notice, “we hereby notify you of the following changes.”
That seems innocent enough on its face, but banking customers must be aware that they actually have no negotiating power over the changes being made to their accounts. The bank makes them unilaterally. An unhappy consumer is often left with only the choice of closing the account and starting the search for a new banking relationship. The notice in question permits the customer to opt out. Few people do either.
As becomes clear almost immediately, the important change announced in the notice is the requirement of binding arbitration that “substantially limits your right to bring a legal action in a judicial forum.”
Many banks and credit unions have recently added this language to their account agreements in order to protect themselves from a recent wave of successful lawsuits and settlements concerning overdraft fees.
Available balance or actual balance
Consumers should understand that these are different numbers. As a rule, an accountholders should assume that their “available balance” is lower than a reported or “actual balance” because of holds a bank may place on certain deposits or transactions. Accountholders often have no way of knowing what their available balance is. This is why some overdrafts occur even when consumers believe that they have enough money in the account.
Further, as the Florida Credit Union notice sets forth:
“The Credit Union can decide whether an overdraft occurs based on your available balance or your actual balance as determined by the Credit Union in its sole discretion from time to time.”
In other words, they can use either number, without any further notice to the consumer. It makes the overdraft fee seem entirely within the discretion of the financial institution.
Cross referencing documents not provided
The notice does not set out the entire Membership Agreement, just the changes. In order to understand the full impact of the amendments, the accountholder would presumably have to compare two or more documents.
Some people may, in fact, have their original Membership Agreement and other amendments somewhere in the bottom of a drawer. But those individuals are rare. Most people are not in a position to fully appreciate the full significance of any changes.
Some excessive overdraft fee lawsuits also involve cross-referenced documents that were never distributed to accountholders. Under the circumstances it is hard to argue that the consumer has had the chance to make an informed decision.
Silence understood as consent
The last page of the notice includes the following:
“If you take no action, then effective immediately your Accounts will be bound by this Mandatory Arbitration of Disputes and Claims provision.”
The upshot is that, if an account holder does nothing (perhaps because they either did not read the notice or gave up before reaching the last page) then they will be understood to have given up the right to go to court and to have a trial before a jury.
There is an old and probably hoary legal maxim, subject to many exceptions, that:
“[S]ilence cannot be considered as a consent [sic] to a contract, except in cases when the silent person is bound in good faith to explain himself, in which case, silence gives consent. But no assent will be inferred from a man's silence, unless, 1st. He knows his rights and knows what he is doing and, 2d. His silence is voluntary.”
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- has no bargaining power;
- has not had a realistic opportunity to make an informed decision; and
- is far less financially sophisticated than the other
What can checking accountholders do?
The first step, of course, is for consumers to inform themselves about the terms of account agreements, so that they can make good decisions about the pros and cons of “overdraft protection.” Awkwardly, this does require struggling through dense legal agreements.
The second is to anticipate and be prepared for some of the issues that may arise in conversations with an attorney about the possibility of an excessive overdraft fee lawsuit, should the circumstances arise.