Popular Bank Hit with Class Action Over Allegedly Improper Overdraft Fee Practices

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Banco Popular North America, who does business as Popular Community Bank, has been hit with a proposed class action that alleges it has charged customers improper overdraft fees on transactions that did not actually overdraw their accounts.

The 17-page lawsuit claims that although Popular Bank’s checking account documents state in “plain, clear, and simple language” that overdraft (OD) fees will be charged only when an account has insufficient funds to cover a transaction, the bank has taken to charging such fees on transactions that were initially authorized but settled into a negative balance days later.

According to the suit, there should always be sufficient funds in an account to cover such transactions, which are described in the complaint as “Authorize Positive, Purportedly Settle Negative” (APPSN) transactions, given that the money is initially set aside by Popular Bank and unavailable for other uses. Thus, an APPSN transaction should never be subject to overdraft fees, the lawsuit argues. 

“In short, Banco Popular is not authorized by contract to charge OD Fees on transactions that have not overdrawn an account, but it has done so and continues to do so,” the complaint contends.

The lawsuit explains that when a customer makes a purchase with their debit card, Popular Bank deducts from their available balance the amount needed to cover the transaction, and thus earmarks those funds to pay the merchant later. However, if an intervening transaction causes a customer’s account balance to go negative before the initial transaction settles, it is Popular Bank’s apparent practice to charge an overdraft fee on both the intervening and initially authorized transactions, according to the suit.

The problem, the case says, is that Popular Bank’s practice of charging overdraft fees on APPSN transactions is not disclosed in the bank’s account documents, which plainly state that customers will be charged an overdraft fee only when their account does not contain sufficient funds to cover a transaction. Because Popular Bank sequesters the funds for APPSN transactions when they’re first authorized, there should always be sufficient funds in a customer’s account to cover the transactions when they settle days later, the case states.

The lawsuit says Popular Bank’s overdraft fee practice with regard to APPSN transactions stems from “a secret batching posting process” during which the bank, “in the middle of the night,” temporarily releases the holds placed on funds in an account and then re-debits the transactions a second time.

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

The case argues that there is “no justification for these practices,” except to maximize the bank’s revenue. 

The lawsuit looks to cover all Banco Popular accountholders in the U.S. who, during the applicable statute of limitations period, were charged an overdraft fee on an APPSN transaction on a Banco Popular checking account.

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