Bank Agrees $ 5.7 Million Settlement in Class Action Alleging Unjustified Imposition of Overdraft Fees | Ballard Spahr srl


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Over the past two weeks, the two CFPB and OCC criticized bank overdraft practices and the CFPB cautioned against increased oversight and enforcement. The potential costly impact that such an in-depth review could have on private litigation is demonstrated by the recent settlement proposed in Lowe v. NBT Bank, NA, a class action lawsuit pending in New York Federal District Court. Under the proposed regulation, the bank agrees to make a cash payment of $ 4.25 million to current and former customers and to waive or waive $ 1.5 million of unrecovered overdraft charges (OD). (Of the $ 4.25 million, approximately $ 1.3 million must be paid to consumers who have allegedly been improperly billed multiple NSF fees on the same transaction.)

The lawsuit challenged the bank’s practice of charging OD fees on “Allow positive transactions, allegedly settle negative transactions” (APPSN Transactions). According to the complaint, the bank would immediately reduce a customer’s checking account balance when a debit card transaction was authorized to an account with sufficient funds to cover the transaction. This was accomplished by setting aside funds in the checking account to cover the transaction and adjusting the “available balance” displayed by the customer to reflect the amount subtracted. The plaintiffs alleged that despite having set aside sufficient funds to cover an authorized debit transaction, the bank would later assess an OD fee on the same transaction if it was subsequently expected to result in a loss. negative balance, resulting in an APPSN transaction. A negative balance would be created if a subsequent transaction on the current account was greater than the “available balance”. The complainants alleged that the bank would charge an OD fee on the APPSN transaction when it was settled, even though the APPSN transaction had sufficient funds to cover it when it was authorized.

CFPB examiners, in the highlights of the CFPB winter 2015 supervision, ruled that a similar practice was unfair and misleading. In addition to asserting that the bank’s practice of charging OD fees on APPSN transactions constituted a breach of contract and violated the good faith and fair use commitment, the complainants alleged that it was of an unfair and deceptive act or practice in violation of New York law. In support of their claims, the complainants cited the highlights of the winter 2015 supervision.

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