Empower Federal Credit Union faces a proposed class action that claims the financial institution has charged overdraft fees on accounts that were not actually overdrawn.
At the center of the 19-page case are what’s described as “Authorize Positive, Purportedly Settle Negative” (APPSN) transactions. Per the suit, Empower has a policy and practice of authorizing certain debit transactions and then charging overdraft fees on those same transactions when they settle days later into a negative balance. The case alleges this practice violates the terms of the credit union’s account documents in that Empower represents to customers that it will charge overdraft fees only on transactions for which an account has insufficient funds.
“There is no justification for these practices, other than to maximize Empower’s OD Fee revenue,” the complaint scathes, claiming the defendant has financially injured its customers “to the tune of millions of dollars.”
According to the lawsuit, Empower states in “plain, clear, and simple language” within its checking account contract documents that the credit union uses an account’s “available balance” to determine whether to assess an overdraft fee. Therefore, the suit says, when the defendant initially authorizes a debit transaction, there will always be sufficient funds to cover that transaction given Empower immediately deducts that amount from an account’s available balance. Thereafter, the sequestered funds are unavailable for the customer’s use and are set aside for when the transaction is settled by the merchant, the case explains.
The transactions at issue in the lawsuit are those that Empower initially approves but are followed by an intervening transaction that causes the customer’s account to fall into a negative balance. The case claims the defendant often charges an overdraft fee on the intervening transaction and then another overdraft fee when the initial transaction settles days later. The lawsuit argues that although Empower represents that it will authorize transactions on positive funds, set those funds aside and then use the money to settle those same transactions, the credit union instead uses a “secret posting process” through which the defendant, “in the middle of the night,” releases the sequestered funds for “a split second” and then re-debits the transactions a second time, charging overdraft fees for transactions that had initially been approved.
“This secret step allows Empower to charge OD Fees on transactions that never should have caused an overdraft—transactions that were authorized into sufficient funds, and for which Empower specifically set aside money to pay them,” the complaint attests.
The lawsuit claims the discrepancy between Empower’s account documents and its actual practices has caused customers to incur more overdraft fees than they should have and breached the terms of their contracts with the credit union.
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