Viewed from a height of 30,000 feet, the lawsuit tells a tale of dogged parties, dug into familiar positions, determined to fight to a conclusion. Despite early setbacks, Ruby Lambert seems to have actually done pretty well for checking account customers who, like her, believe they were cheated by Navy Federal.
What happened to Ruby Lambert
The facts alleged in Lambert v. Navy Federal Credit Union are similar to those described in many other bank overdraft fees lawsuits. Lambert’s insurance company, Mutual of Omaha, presented her regular insurance premium for payment from her checking account. There was not enough in the account, so Navy Federal charged Lambert $29 and returned the item, unpaid. Two days later, Mutual of Omaha resubmitted its request. There was still not enough money, so Navy Federal again charged Lambert $29 and returned the item. The lawsuit is about the second $29 fee.
In 2019, Lambert filed this lawsuit on behalf of herself and similarly situated Navy Federal checking account holders. According to Navy Federal’s general practice, after the credit union bounces a debit item or check, the merchant may re-present that same item for payment up to three times. If there is still not enough money in the account, Navy Federal charges an insufficient funds fee each time.
Lambert claims that, under the terms of her contract with Navy Federal, the credit union was limited to one insufficient fund fee, regardless of how many times the merchant resubmitted the item. Significantly, her complaint is rooted in state common law, making claims for breach of contract and breach of the covenant of good faith and fair dealing and violation of the North Carolina Unfair and Deceptive Trade Practices Act.
Familiar facts, familiar arguments
This, too, is a well-established line of argument. Even the National Association of Federally-Insured Credit Unions (NAFCU), a credit union industry trade group, has warned its members that excessive overdraft fees lawsuits may allege “breach of contract due to ambiguous terms in account agreements, such as lack of clarity as to how the credit union will determine that there are insufficient funds in the account.”
Sometimes the magic works; sometimes it doesn’t
Different courts decide these claims differently. Plaintiffs win some and they lose some. At trial, the court dismissed Lambert with prejudice. Specifically, it found that some of her claims were pre-empted by regulations under the Federal Credit Union Act and the Truth in Savings Act. It dismissed them, finding that her contract with Navy Federal did, in fact, permit it to charge fees as it had.
Often, that kind of a result is the death knell for a lawsuit. A dismissal with prejudice stings; it is effectively the court’s way of saying “go, and don’t come back here, either.”
Lambert, however, appealed to the Fourth Circuit. The Fourth Circuit stayed further proceedings to allow the parties to mediate an agreement. The proposed settlement, filed on October 21 and not opposed by Navy Federal, is the result.
What consumers will get and what Navy Federal will get
It has been said that the hallmark of a good settlement is that it leaves both sides slightly unhappy. Under the proposal, Navy Federal customers will get $16 million in cash. The fund will be divided among them as outlined in an unpublished attachment to the proposed settlement. This allocation scheme is an area that the court will scrutinize carefully. If there is a sticking point in approval, this may be it.
In addition, Navy Federal has agreed to revise its account agreement and related documents to further explain when additional insufficient funds fees may be assessed. The customers who were covered by the lawsuit will not have to file individual claims, so they have gained a measure of convenience as well as a financial recovery. On the other hand, they gave up their request for monetary damages, which might have been greater than $16 million.
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Both sides have been spared the cost and uncertainty of further litigation. The uncertainty clearly loomed large for the plaintiffs, given the initial dismissal of the lawsuit. Banks and credit unions also appear to have widely adopted a policy of not going to trial on excessive overdraft fees lawsuits, choosing instead to use pre-trial motion practice to their possible financial exposure. Neither side is likely to come away with a sense of vindication, but the checking account customers will likely get more than they would have if they had just shrugged off petty losses and an arguably unfair banking practice.