A proposed class action alleges CFCU Community Credit Union has wrongfully charged overdraft fees on transactions that do not actually overdraw an account and collected “unnecessary and futile” overdraft transfer fees when the transfer of such funds does not prevent an overdraft.
The 20-page lawsuit alleges CFCU’s overdraft practices violate the credit union’s contracts with customers and have financially injured them “to the tune of millions of dollars taken from their accounts in violation of their agreements with CFCU.”
Central to the case are what the complaint describes as “Authorize Positive, Purportedly Settle Negative Transactions” (APPSN). The suit states that APPSN transactions occur when the credit union initially authorizes a debit card transaction for which a customer’s account contains sufficient funds but then charges an overdraft fee when the account purportedly settles into a negative balance days later. The lawsuit explains that because CFCU sequesters funds to cover the amount of the initial transaction and makes these funds unavailable for the customer’s use, there should always be sufficient funds in the customer’s account to cover an APPSN transaction when it settles.
Nevertheless, CFCU often charges overdraft fees on such transactions when a subsequent intervening transaction reduces a customer’s account balance, the case alleges.
According to the suit, the only reason for CFCU’s practice of charging overdraft fees on APPSN transactions is to maximize its revenues:
“APPSN Transactions only exist because intervening checking account transactions supposedly reduce an account balance. But CFCU is free to protect its interests and either reject those intervening transactions or charge OD Fees on those intervening transactions—and it does the latter to the tune of millions of dollars each year. But CFCU was not content with these millions in OD Fees. Instead, it sought millions more in OD Fees on these APPSN Transactions.”
The lawsuit contends that CFCU states in “plain, clear, and simple language” in its contracts with customers that overdraft fees will be charged only on transactions for which a customer’s account contains insufficient funds. The credit union’s practices, however, contradict the clear representations in its contracts and “exploit contractual discretion to gouge accountholders,” the suit claims.
The lawsuit takes further issue with CFCU’s apparent practice of charging a $10 overdraft transfer fee for a purported overdraft protection service even in instances when the transfer from a customer’s savings account is insufficient to prevent an overdraft of their checking account. According to the case, CFCU offers an overdraft protection and prevention service through which the bank will transfer funds from a customer’s savings account to cover transactions that would otherwise overdraw their checking account. The credit union charges a $10 pre-transfer fee for the service, the case relays.
Although the overdraft protection service is meant to prevent customers from being charged a $38 overdraft fee, CFCU automatically performs these transfers even when doing so “will be wholly futile,” the lawsuit alleges. In other words, CFCU will make an automatic transfer from a customer’s savings account—and charge a $10 fee for doing so—even when the funds are insufficient to prevent the individual’s checking account from being overdrawn, according to the suit. In these cases, customers are charged both the $10 transfer fee and a $38 overdraft fee for a total of $48 in fees on a single transaction, the lawsuit states.
Per the case, it is “bad faith and totally outside [customers’] reasonable expectations” for CFCU to use its discretion to transfer funds and assess a transfer fee when doing so “had no preventative purpose.”
The lawsuit looks to represent accountholders who, during the applicable statute of limitations, were charged overdraft fees on APPSN transactions on a CFCU checking account or were charged an overdraft protection transfer fee for a transfer that did not prevent an overdraft. The complaint notes that if the court does not certify a nationwide class, the suit proposes to cover New York accountholders who fit the same criteria.
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