Consumer Alleges Atlantic Union Bank Charged Overdraft Fee for Square App Account Verification

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A Virginia consumer alleges in a proposed class action that Atlantic Union Bank has unlawfully assessed overdraft fees and non-sufficient funds fees (NSF fees) on “phantom transactions,” specifically those of minuscule amounts that occur during the user verification process for payment apps such as Square and PayPal.

The case states that as part of the verification process employed by apps such as Square, Airbnb and PayPal, a small amount of money, usually under 10 cents, will be deposited into and then almost immediately withdrawn from a user’s account. This process, the suit specifies, occurs “virtually simultaneously,” and exists solely to ensure the account is real and that a company can communicate with the account. These verification deposits and withdrawals, which generally take only a few minutes, are effectively a test, the case reads, and should not affect a user’s account balance given no actual purchase or payment has taken place.

Though banks like Atlantic Union are aware of this verification process, the lawsuit says, the plaintiff claims she was charged a $36 overdraft fee when, after signing up for an account with credit card payment processor Square, the app deposited one penny and then immediately withdrew that penny. The case alleges no purchase or transaction was made from the plaintiff’s account before she was hit with the $36 fee, which, according to the lawsuit, was assessed in violation of Atlantic Union Bank’s adhesion contracts with accountholders.

According to the lawsuit, the one-penny-in, one-penny-out Square verification process cannot trigger an “overdraw” as the word is used in the defendant’s Deposit Agreement in that it was not a “withdrawal request,” and the penny deduction did not overdraw the plaintiff’s account. Moreover, the suit goes on, the one-penny verification process similarly did not trigger an “overdraft created” as the phrase appears in Atlantic Union Bank’s Overdraft Disclosure. Essentially, the case claims, Square’s penny deposit and withdrawal from the plaintiff’s account could not trigger an overdraft fee because “there were always funds to ‘pay’ the one penny deduction” since the company placed the penny there in the first place before deducting the same amount.

The lawsuit looks to cover all Atlantic Union checking account holders who, within the applicable limitations period, were charged an overdraft or non-sufficient funds fee as the result of a verification process for their account that resulted in no change to their account balance.