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A Los Angeles federal judge may decide next week whether to approve a $1.5 million agreement that will settle a class action lawsuit against the $8.9 billion American Airlines Federal Credit Union over allegations that it improperly charged overdraft fees on member accounts.
Sylvia Varga of Marina del Ray, Calif., a former member of the Fort Worth, Texas-based AAFCU, filed the lawsuit in federal court. She claimed the credit union charged her Authorize Positive Purportedly Settle Negative Transaction (APPSN) fees on her debit card transactions in July and August 2019 even though the transactions had been authorized on a sufficient account balance. She also alleged that AAFCU charged multiple "retry fees" on the same transactions, and that she was charged two retry fees for non-sufficient funds totaling $50 for one PayPal transaction.
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According to the proposed agreement, AAFCU did not admit or concede to any of the allegations made in the Varga complaint and denied any fault, liability or any charges of wrongdoing. The credit union contended the overdraft fees it charged were proper and in accordance with the terms of the account agreements and applicable laws.
"Defendant has entered into this agreement to resolve any and all controversies and disputes arising out of or relating to the allegations made in the (Varga) first amended complaint, and to avoid the burden, risk, uncertainty, expense and disruption to its business operations associated with further litigation," the proposed settlement read.
From the $1,590,000 settlement fund, a yet-to-be determined number of former and current AAFCU members will receive cash payments or credits for APPSN fees between May 14, 2016 and Oct. 8, 2020, and retry NSF fees between May 14, 2016 and Feb. 29, 2020. What's more, the credit union has agreed to forgive uncollected overdraft fees totaling $175,807.
Varga will receive a $15,000 service award for her work on the class action suit and her attorneys will receive fees of not more than 25% of the value of the settlement fund, but they are also expected to be reimbursed for litigation costs for prosecuting the case, according to the settlement.
The agreement came about seven months after U.S. District Judge Dale S. Fischer granted in part and denied in part AAFCU's motion to dismiss the case in December 2020.
Varga, who contracted with AAFCU for checking account and debit card services, alleged the credit union breached the terms of that contract when it charged the APPSN and retry fees on the same purchased item. AAFCU, however, argued that the terms of the account contract did not prohibit the assessment of the fees and asked Judge Fischer to dismiss her breach of contract claim.
The federal judge determined a breach of contract claim may not be dismissed when the contract's terms are ambiguous.
"Varga offers a reasonable interpretation of the account agreement that supports her breach of contract claim," Judge Fischer wrote in court documents and in denying AAFCU's motion to dismiss her breach of contract claim. In addition, Judge Fischer denied AAFCU's motion to dismiss two other claims made in Varga's lawsuit against the credit union, but he did dismiss her allegations that the Texas credit union violated California's Unfair Competition Law.
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Peter Strozniak
Credit Union Times reporter covering credit union operations, fraud, M&As, leagues, business continuity, and breaking news.
