![Three litigation theories of excessive bank overdraft fee lawsuits](/images/articles/s/Overdraft-Fees-iStock-Dec-2019-8.jpg)
Two sets of books – or the “ledger balance” argument
This is a banking practice that permits banks to charge overdraft and return item fees on transactions that arguably do not overdraw a customer’s account.
In one recent situation described by Streisfeld, the bank determined whether an account balance was negative (and thus subject to overdraft fees) by using a calculation that deducted pending debit card items. This manufactured balance, sometimes referred to as the “available balance,” was often less than the balance provided to accountholders in their monthly statements or when they check their account balances online, which is sometimes referred to as the “ledger balance.”
Problems arise when the contract between the financial institution and the customer describes the use of the ledger balance to determine if an overdraft exists, when in fact the institution uses the lower available balance as the trigger to assess overdraft fees.
The counterargument to be made by customers focuses on misleading or incomplete disclosures in the contractual agreements. These agreements, which have various names, such as an account agreement, membership agreement or a separate overdraft protection agreement, can be difficult to read, may incorporate other undisclosed bank documents by reference, and are often unilaterally updated by the bank, without ever being read or fully understood by the average account holder. The contracts are often ambiguous. Whether that ambiguity is intentional or not, the accountholders should get the benefit of the doubt because they cannot control what language goes in the contract.
Enough money in your account? Never mind, we’ve changed our mind.
Another variation on the same theme involves re-casting the financial institution’s decision to pay a particular debit card transaction as a two-step process. These are often referred to as “Authorize Positive Purportedly Settle Negative Transactions,” or “APPSN Transactions.”
In this scenario, when a debit card transaction is authorized on an account with positive funds to cover the transaction, the financial institution immediately reduces the consumer’s checking account balance in the amount of the transaction, sets aside funds to cover the transaction, and as a result, the customer’s displayed “available balance” in the account reflects that subtracted amount. Because the funds have been sequestered for payment, the account will always have sufficient available funds available to cover the positive balance transaction.
However, sometimes transactions actually settle and the funds are transferred from the customer’s account to the merchant’s account several days later. During that period of days, several more account transactions may occur.
On the settlement date, when the financial institution pays the merchant, the bank or credit union assesses an overdraft fee on the transaction that authorized against a positive balance, but settled against a negative available balance. This happens despite the fact that the funds to pay for the transaction had been sequestered since the date the transaction was authorized, and that the financial institution “must pay” the transaction. Once the institution authorizes the debit card transaction, it is not permitted to deny payment to the merchant that has already provided the good or service.
The Consumer Finance Protection Bureau expressed concern about the deceptive nature of APPSN transactions as long ago as 2015.
Broken or misleading promises about multiple return item (or NSF) fees for the same transaction
![Attorney Jonathan Streisfeld, Partner at KO](/images/content/Jonathan-KO.jpg)
In one recent situation described by Streisfeld, the bank’s fee schedule indicated that only a single insufficient funds fee would be assessed per item returned due to insufficient funds. According to the account agreement in the same case, “Your account may be subject to a charge for each Overdraft regardless of whether we pay or return the Overdraft.” Another contract document stated, “You will be charged a non-sufficient funds (NSF) fee of $30 for each item returned.”
A reasonable consumer would conclude that the terms “item” and “each” referred to only one NSF fee. The plaintiff in that case did not dispute the bank’s right to charge the first NSF fee but was startled by the repeated fees for a single item. She believed the additional charges violated the terms of her agreement with the bank.
READ MORE EXCESSIVE OVERDRAFT FEE LEGAL NEWS
These approaches to excessive overdraft fee lawsuits hardly exhaust the range of remedies available to consumers who believe that they have been victimized by their financial institutions. Nonetheless, they reflect some of issues seen by Streisfeld and his KO partners in their practice.
READER COMMENTS
GLADYS HARUN
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ELIZABETH CAMBRIDGE
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Joan
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I bank at PNC and everytime I overdraw I am charged
36 dollars and 7 dollars a day up to 98 dollars