Frontwave Credit Union Hit with Class Action Over Allegedly Unauthorized Overdraft Fees

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A proposed class action claims Frontwave Credit Union (FCU) has assessed unlawful overdraft fees on transactions that did not actually overdraw customers’ accounts.

At issue in the 16-page case are what the complaint describes as “authorize positive, purportedly settle negative” (APPSN) transactions. Per the suit, these types of transactions are initially authorized by the credit union into positive funds but settle into a negative balance days later as a result of intervening transactions that purportedly deplete an account’s funds.

According to the case, FCU fails to disclose in its account documents its practice of assessing overdraft fees on APPSN transactions and instead states in “plain, clear, and simple language” that it will only charge an overdraft fee when an account contains insufficient funds to cover the transaction at issue.

The lawsuit says Frontwave Credit Union has injured its customers “to the tune of millions of dollars bilked from their accounts in violation of their agreements with FCU.”

Per the case, there should always be sufficient funds in a customer’s account to cover APPSN transactions because FCU sets aside those funds when the transaction is initially authorized and makes them unavailable for the customer’s use. Despite putting the funds on hold, however, FCU fails to use those same funds to settle APPSN transactions, the lawsuit says.

The case claims FCU instead uses a “secret posting process” during which it releases the hold placed on APPSN transaction funds “for a split second” in the middle of the night and then re-debits the transaction a second time.

“This secret step allows FCU to charge OD Fees on transactions that never should have caused an overdraft—transactions that were authorized into sufficient funds, and for which FCU specifically set aside money to pay,” the complaint states. “This discrepancy between FCU’s actual practices and the contract causes accountholders to incur more OD Fees than they should.”

The lawsuit argues that FCU is not authorized to charge overdraft fees on APPSN transactions given the credit union states in its account agreements that it will only charge overdraft fees when a customer does not have enough money in their account to cover a transaction “but FCU pays it anyway.”

The case looks to represent Frontwave Credit Union checking account holders who, during the applicable statute of limitations period, were charged overdraft fees on APPSN transactions on a Frontwave checking account.

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