11th Circuit Revives Class Action Over Credit Union's Overdraft Fee Charges

The U.S. Eleventh Circuit Court of Appeals on Tuesday revived a proposed class action accusing a credit union with more than a dozen north metro branches of violating federal law and breach of contract by charging customers overdraft fees for withdrawals even though there was sufficient money in their accounts.

The credit union instead relied on an “available balance” calculation under which it subtracted pending deposits and transactions to determine that a customer was overdrawn and levied overdraft fees.   

A federal judge dismissed the claims against Marietta, Georgia-based LGE Community Credit Union, ruling that its contract with its customers allowed it to use the available balance calculation, but the appeals court panel said contracts were ambiguous as to whether the actual amount in an account—the “ledger balance”—must be used instead and sent the case back to the trial court.   

The 29-page published opinion—written by Judge Jill Pryor of the U.S. Court of Appeals for the Eleventh Circuit and which was joined by Judges Beverly Martin and Julie Carnes—said that, under both the plain language of the contracts and Georgia’s rules for contract construction, there was enough ambiguity for a jury to make the call.

The plaintiff’s attorneys are E. Adam Webb and G. Franklin Lemond Jr. of Webb, Klase, & Lemond in Atlanta; and Richard McCune of McCune Wright Arevalo in Redlands, California; and Taras Kick of The Kick Law Firm in Los Angeles.

Webb said the case reflects changes that have accompanied automated banking.

“Unfortunately, the old idea of your bank or credit union looking out for you can no longer be depended upon,” he said via email. “Financial institutions have adopted a variety of automated practices to improperly seize excessive funds from their customers.

“In this decision, the Eleventh Circuit has recognized that—where such practices violate contracts or federal law—customers may be entitled to seek recovery from a jury,” Web said.

The credit union is represented by Kevin Maxim of The Maxim Law Firm in Atlanta and Stephen Dunn and Brandon Wilson of Howard & Howard in Royal Oak, Michigan. Dunn said there would be no comment on the ruling.  

Under Electronic Fund Transfer Act of 1978, banks and financial institutions allowing customers to use services such as debit cards and make online purchases are allowed to cover the cost of transactions when there are insufficient funds and then charge a fee, but the customers must specifically opt in to the service.

The plaintiff, Carol Tims, had a checking account with LGECCU that included a debit card.

Under LGECCU’s “Courtesy Pay” program, the credit union’s membership agreement act said if “an item is presented without sufficient funds in your account to pay it, we may, at our discretion, pay the item (creating an overdraft) or return the item (nonsufficient funds).”

“In another member contract, LGECCU defines an overdraft as when there is not enough money in the account to cover a transaction, but LGECCU pays it anyway,” the complaint said. 

But while the credit union promised to charge overdraft fees only when there is not enough money available, “LGECCU’s practice when assessing an overdraft fee on a transaction is to ignore whether there is money in the account, and instead make the automated decision on assessing overdraft fees based on an artificial internal calculation (sometimes known as the ‘available balance’) rather than the actual balance,” Tims complaint said. 

“The result is that LGECCU improperly charges members overdraft fees in situations when there is money in the account to cover the transaction.”

Tims, it said, was hit with two $30 overdraft fees despite having enough money in her account to cover the transactions at the time 

Tims’ complaint, filed in 2015 in Atlanta federal court, included claims for breach of contract, violation of the EFTA and Georgia’s implied covenant of good faith, and named a class about 100,000 members of the credit union, which now hosts 13 locations in Atlanta’s northern suburbs.  

Ruling on a motion to dismiss in 2017, U.S. District Judge Thomas Thrash of the Northern District of Georgia wrote that while Tims’ interpretation of her contract with the credit union “may be persuasive or reasonable when certain clauses are viewed in isolation, they lead to conflict and absurdity when viewing the agreements as a whole. The only reasonable interpretation of the agreements requires the use of the available balance method.”

Regarding her claims concerning the EFTA, Thrash wrote that while the credit union’s language in the opt-in agreement may have been “imprecise,” it “cannot be said to have explicitly misled the Plaintiff or inaccurately described its overdraft program.”

In remanding the case, the appellate order rejected both sides’ arguments that the agreements confirmed their position.

“Each party contends that the agreements’ plain language clearly supports its own interpretation of LGE’s balance calculation method,” Pryor wrote. “After careful review, we disagree with both parties that the agreements are unambiguous.”

Citing the agreements’ language, Pryor said “both parties’ arguments raise the question of how LGE determines what ‘enough money’ is—is it enough money to cover only settled transactions or to cover authorized but not yet settled transactions as well?” 

“In the absence of anything in the account agreement addressing the account balance calculation method LGE used in its overdraft service for unsettled transactions and given the ambiguity of the terms ‘sufficient funds’ and ‘available,’ the account agreement failed to clearly indicate which balance calculation method LGE was using” to assess overdraft fees, Pryor wrote.

Regarding the EFTA, Pryor said that because the contract was ambiguous and “could describe either the available or the ledger balance calculation method for unsettled debits,” it “is plausible that the notice does not describe the overdraft service in a ‘clear and readily understandable’ way” as required by the law.   

“It is also plausible that Tims had no reasonable opportunity to affirmatively consent to LGE’s overdraft services,” she said.