This case gives a good overview of the recent cases regarding overdraft fees and their relationship to the Electronic Fund Transfer Act and its implementing regulation, Reg. E.
Domann argues that SCU used a method of calculating his balance that deviated from the method described in its contracts with Domann, leading SCU to charge him excess overdraft fees. In this putative class action, Domann brings claims against SCU for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, money had and received, violation of Regulation E of the Electronic Fund Transfers Act (EFTA), and violation of the Wisconsin Deceptive Trade Practices Act.
Overdraft fees have attracted the attention of regulators and the media in recent years. In 2009, the Federal Reserve adopted Regulation E, a set of rules intended to “assist consumers in understanding how overdraft services provided by their institutions operate and to ensure that consumers have the opportunity to limit the overdraft costs associated with ATM and one-time debit card transactions where such services do not meet their needs.” Electronic Fund Transfers, 74 Fed. Reg. 59,033-01 (Nov. 17, 2009) (codified at 12 C.F.R. § 205.1). Regulation E “require[s] financial institutions to secure a customer’s `affirmative consent’ before charging overdraft fees,” which must be obtained through an opt-in notice. This opt-in notice must contain a “brief description of the financial institution’s overdraft service” and be “substantially similar” to the Fed’s Model Form A-9. 12 C.F.R. § 1005.17(d).
Overdraft fees are tied to the customer’s account balance. Financial institutions primarily use two methods to calculate an account holder’s checking account balance: the “ledger” balance and the “available” balance. As described by the Consumer Financial Protection Bureau (“CFPB”),
[a] ledger-balance method factors in only settled transactions in calculating an account’s balance; an available-balance method calculates an account’s balance based on electronic transactions that the institutions have authorized (and therefore are obligated to pay) but not yet settled, along with settled transactions. An available balance also reflects holds on deposits that have not yet cleared.
CFPB, Winter 2015 Supervisory Highlights, Section 2.3.
The following example illustrates the distinction:
If a member has a $100 ledger balance but uses his debit card to buy dinner for $40, then there is a pre-authorization hold on his account (at the request of the restaurant), and his available balance (the money he has left to use) is $60.00. In other words, the $40, which the member just spent, is no longer available for use. His ledger balance is still $100 until the restaurant charge is submitted and posted to his account. On the credit side, if he deposits an out-of-the-state check in the amount of $5,000 a hold will be placed on all but $200. In this example, his available balance is $200 and his ledger balance is $5,000, even though the check may never clear.
SCU’s Br. in Supp., dkt. 11, at 3.
Not surprisingly, “[u]sing the available balance method often leads to more frequent overdrafts because there is less money available in the account due to holds and pending transactions.” Tims v. LGE Cmty. Credit Union, No. 1:15-CV-4279-TWT, 2017 WL 5133230, at *1 (N.D. Ga. Nov. 6, 2017). Many account holders who have been subjected to overdraft charges based on “available balance” calculations not only feel blindsided by this, they feel that this practice is a breach of their contract with their credit union or bank. A series of virtually identical lawsuits has been filed across America challenging this practice. See, e.g., Walker v. People’s United Bank, 305 F. Supp. 3d 365 (D. Conn. 2018); Walbridge v. Ne. Credit Union, 299 F. Supp. 3d 338 (D.N.H. 2018); Tims v. LGE Cmty. Credit Union, No. 1:15-CV-4279-TWT, 2017 WL 5133230 (N.D. Ga. Nov. 6, 2017); Smith v. Bank of Hawaii, No. CV 16-00513 JMS-RLP, 2017 WL 3597522 (D. Haw. Apr. 13, 2017); Ramirez v. Baxter Credit Union, No. 16-CV-03765-SI, 2017 WL 1064991 (N.D. Cal. Mar. 21, 2017); Gunter v. United Fed. Credit Union, No. 315CV00483MMDWGC, 2016 WL 3457009 (D. Nev. June 22, 2016); Wodja v. Washington State Employees Credit Union, 2016 WL 3218832 (W.D. Wash. June 9, 2016); Pinkston-Poling v. Advia Credit Union, 227 F. Supp. 3d 848 (W.D. Mich. 2016); Chambers v. NASA Federal Credit Union, 222 F. Supp. 3d 1 (D.D.C. 2016).