Banks & Banking – NSF & Overdraft Fees – Regulation E – Breach of Contract – ‘Item’ Definition

The plaintiff-customers challenge the defendant-bank’s use of “available balance” bookkeeping rather than actual balance bookkeeping. Plaintiffs have stated claims alleging that the bank failed to give sufficient notice of its practices and that the bank failed to abide by its own customer agreement.

The bank’s motion to dismiss is denied.

Timeliness

A claim under the Electronic Funds Transfer Act (EFTA) must be brought “within one year from the date of the occurrence of the violation.” 15 U.S.C. § 1693m(g). The bank charged plaintiff Butcher an NSF fee for an overdraft that resulted from a debit card transaction on July 22, 2019, almost a year and a half before she filed her claim in this case.

In support of its argument that suit must be filed within one year of the first instance of an allegedly noncompliant transfer, the bank cites cases involving a series of preauthorized, recurring transactions. Those cases are distinguishable and/or unpersuasive.

The instant case does not involve preauthorized, recurring transfers; rather, the provision of the Federal Reserve Board’s Regulation E at issue here, 12 C.F.R. § 1005.17, applies to non-recurring debit card and ATM transactions. Courts have rejected the same timeliness challenge brought by the bank in cases involving materially similar facts.

Butcher brought her claim within one year of an allegedly noncompliant transfer, so her claim was timely filed.

Disclosure

The bank argues that, when all the relevant provisions in its personal deposit account agreement (PDAA) and its “Opt-in Agreement” (for its overdraft program) are read in harmony, they unambiguously disclose that the bank uses the available balance method to make overdraft determinations. However, Butcher has made a plausible showing that the Opt-in Agreement fails to clearly and accurately describe the bank’s overdraft program.

The primary objective of the EFTA, and by derivation Regulation E, is “the protection of individual consumers engaging in electronic fund transfers and remittance transfers.” 12 C.F.R. § 1005.1(b). To fulfill that mandate, Regulation E governs certain aspects of a financial institution’s overdraft policy. In particular, it establishes that a financial institution shall not assess a fee or charge on a consumer’s account for paying a one-time debit card transaction pursuant to the institution’s overdraft service, unless the institution provides the consumer with a notice in writing segregated from all other information, describing the institution’s overdraft service.

Plaintiffs’ amended complaint alleges a plausible Regulation E violation because the Opt-in Agreement states that an overdraft “occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway”, whereas the bank’s available balance practice allegedly results in overdraft fees when sufficient money remains in the account to cover the transaction in question. Moreover, the statement “we pay it anyway” suggests that the bank 0advances its own funds to cover an overdraft, but the amended complaint describes situations in which the account holder’s own money satisfies the transaction and an overdraft fee is still assessed.

If the bank’s Opt-in Agreement inaccurately or incompletely describes the conditions under which overdraft fees are assessed for ATM and non-recurring debit card transactions it can hardly be said to describe the bank’s overdraft service in a clear and readily understandable way. Courts have found the same language from the bank’s Opt-in Agreement to be ambiguous as to the account balance calculation a financial institution uses to assess overdraft fees. Butcher has plausibly alleged that she was not provided sufficient information regarding the bank’s overdraft practices to give informed consent, and the motion to dismiss the Regulation E claim for failure to state a claim is denied.

Breach of Contract

Plaintiff Fludd alleges that the bank violated its own PDAA because it charged her NSF fees when a merchant re-presented a previously rejected item (for which she had already been charged an NSF fee). At bottom, the parties’ dispute over repeat NSF fees boils down to their respective interpretations of the word “item” as it is used in the PDAA. Where a contract’s material terms are ambiguous, their meaning becomes a question of fact unsuitable for a motion to dismiss.

Fludd’s good faith and fair dealing claim also survives. Even if the bank complied with the literal terms of the PDAA, an assumption which Fludd disputes, a plausible claim remains that the bank imposed NSF fees in an abusive manner.

Motion denied.

Fludd v. South State Bank (Lawyers Weekly No. 002-016-21, 29 pp.) (Bruce Howe Hendricks, J.) 2:20-cv-1959. Emily Jo Kirk, Mark Charles Tanenbaum, Michele Vercoski, Richard Harpootlian and Richard McCune for plaintiffs; Brian Kahn, Thomas Richmond McPherson and Zachary McCamey for defendants. D.S.C.