Lawsuits Against Credit Unions for Illegal Overdraft Fees
Last Updated on October 13, 2022
Important Information
Attorneys working with ClassAction.org are no longer investigating this matter. The information here is for reference only. A list of open investigations and lawsuits can be viewed here.
At A Glance
- This Alert Affects:
- Credit union members who believe they were unfairly or illegally charged overdraft fees.
- What’s Going On?
- Attorneys working with ClassAction.org are investigating whether class action lawsuits can be filed against credit unions for the way they charge overdraft fees.
- What’s the Problem?
- It’s been alleged that some credit unions may be engaging in the same overdraft practices that several major banks were sued over in the past decade. These banks paid millions to their customers to resolve the claims.
- How Could a Class Action Lawsuit Help?
- If a class action lawsuit is filed and is successful, credit union members may be able to get back money for any illegal overdraft fees they were charged.
Attorneys working with ClassAction.org are currently investigating the overdraft practices of credit unions across the country.
They're looking into whether certain credit unions are illegally charging overdraft fees to their customers and whether these people can take action to get their money back. Several banks have already been hit with class action lawsuits over their overdraft practices and have paid out millions to settle claims against them. Read on for more.
When Is It Illegal for a Credit Union to Charge Overdraft Fees?
It’s suspected that there are three ways credit unions may be illegally and unfairly charging their members.
Reordering Transactions
In this practice, the credit union will reorder customers’ transactions so that it can charge as many overdraft fees as possible. Rather than debit a customer’s account in the order the transactions were made, the credit union will instead process the debits in highest-to-lowest order. This allows the credit union to maximize the number of overdraft fees it can charge.
For instance, assume you have $75 in your account. You stop at the mall and make three separate purchases for $5, $8 and $10. Then, you go to the supermarket and buy groceries for $50. Lastly, you stop for gas on your way home and debit $30. If these debits were processed in the order in which they were made, you would only be charged one overdraft fee.
Some credit unions, however, may instead process these debits in highest-to-lowest order, meaning you would be charged three overdraft fees instead of one in this example.
Charging “Extended” or “Sustained” Overdraft Fees
Some credit unions may be charging additional fees to members who fail to replenish their accounts within a certain amount of time – say, seven to 10 days – after being hit with an overdraft fee. These fees are typically called “extended” or “sustained” overdraft fees and are charged separate and apart from the original overdraft fee.
Class action lawsuits have already been filed against banking institutions claiming that extended and sustained overdraft fees are illegal because they essentially function as interest. Under the National Bank Act, there is a limit to how much a business can charge in interest – and it’s possible that some extended overdraft fees are up to 50 times this limit.
Charging Overdraft Fees for Everyday Purchases When Their Contracts Forbid It?
In recent years, some banking institutions have changed their policies so that they would only charge overdraft fees on certain debit card transactions. This was done mostly to appease public outcry over costly overdraft fees.
Some credit unions are now promising to decline transaction requests for one-time everyday purchases – for instance, an Uber ride, dinner at a restaurant or a new pair of shoes. This would save the customer from being charged an overdraft fee should his or her account go into the red with the purchase.
Attorneys are now investigating, however, whether certain credit unions are living up to their promises. It may be that some institutions are levying overdraft fees on everyday purchases even when their contracts say they will only do so for recurring transactions, such as monthly student loan or mortgage payments.
How Could a Class Action Lawsuit Help?
A class action lawsuit could help credit union members get back any overdraft fees they were wrongfully charged. Furthermore, a lawsuit could help put an end to these questionable practices and dissuade other financial institutions from breaking the law.
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