Class Action: Comerica Bank, Elan Financial Trapped Customers in ‘Unfair Cycle’ of Overdraft Fees

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A proposed class action lawsuit out of Michigan claims Comerica Bank (CB) and Elan Financial Services enroll customers into overdraft protection without consent as a ploy to charge related fees.

According to the complaint, the defendants offer overdraft protection services through which the pair appropriate funds from customers’ Elan-serviced credit cards to purportedly “prevent overdrafts” of clients’ Comerica checking accounts. The lawsuit explains that when a customer overdraws his or her checking account, the defendants automatically transfer an “advance” from the individual’s credit card into the account.   

Although Elan’s cardmember agreement states that overdraft protection must be “specifically requested” by the accountholder, the defendants frequently enroll customers in overdraft protection without permission, the suit claims. The case contends that the defendants use overdraft protection as a pretense to charge multiple fees and elevated interest rates on overdraft “advances.” For instance, the defendants allegedly charge a $10 overdraft protection fee, an $8 to $16 overdraft protection transfer fee, and over 25 percent interest on each “overdraft protection advance.”

Furthermore, when transferring funds to cover an overdraft of customers’ Comerica accounts, the defendants round the “advance” to the nearest $100 increment, the case claims. “For example,” the complaint explains, “if a customer over drafts their account to a -$1 balance in one day, CB will transfer $100 from the customer’s ELAN-serviced credit card into their CB checking account.” The lawsuit argues that this practice allows the defendants to charge a high interest rate on the “unnecessary” additional funds.

Moreover, the case contends that the defendants enroll customers in an “auto-pay” program by default that allows their checking accounts to be automatically debited to pay the minimum balance on their credit cards. According to the suit, this practice, coupled with overdraft protection, can create a cycle of fees that racks up customers’ credit card debt by continuously “overdrafting” their accounts. From the complaint:

“This illogical, and patently unfair, cycle will sometimes result in the ELAN-serviced credit card effectively advancing funds – more than necessary – from itself to pay its own minimum payment, resulting in nothing more than an additional fees [sic] to CB and ELAN for moving a fabricated debt from one account to the other.”

With regard to the lead plaintiff, the case states the man was enrolled in the defendants’ overdraft protection and auto-pay programs without his permission and had his Comerica account overdrawn on January 2, 2018 in order to pay the minimum balance on his Elan credit card. The next day, the defendants allegedly transferred a $1,000 overdraft protection advance from his Elan card to his Comerica account and charged him interest on the “advance.” All told, the defendants transferred $6,000 in the span of a month to the plaintiff’s Comerica account, charged nine separate overdraft protection transfer fees and collected $83 in interest, according to the complaint. The plaintiff, who was traveling abroad at the time, claims the defendants never informed him that his account was overdrawn or gave him the opportunity to cancel any transactions that resulted in an overage.

The complaint contends the defendants’ overdraft protection practices constitute breach of contract and unjust enrichment and violate the Michigan Consumer Protection Act. According to the case, the defendants’ practice of using overdraft coverage as a pretext to charge excessive fees and interest is not isolated to Comerica, but is widespread among other banks as well.

The lawsuit looks to represent the following class:

“All CB and ELAN customers in the United States who maintained checking accounts with CB, and credit cards with ELAN, and who were assessed overdraft fees and interest due to Defendants entering customers into Overdraft Protection without customers’ consent, rounding up to the nearest $100 increment when transferring an Overdraft Protection Advance and over drafting customers’ CB checking accounts to pay their ELAN credit card.”