The customers were customers of the credit union. The credit union calculated a customer’s balance for overdraft purposes using the “available balance” method. Credit and debit card transactions involve two steps: authorization and settlement. Authorization occurs when a customer makes a payment with a credit card, while settlement, which may occur several days after the authorization, occurs when a financial institution pays the merchant the amount of the purchase. Under the available balance method, a card holder’s balance is reduced after authorizing a payment, before the financial institution settles the payment. The credit union charged customers overdraft fees for payments that did not exceed the customer’s balance at the time of authorization but did exceed the customer’s balance at settlement. For example, if a customer had a $100 balance and spent $75, the customer, at the time of purchase, did not exceed his or her balance. However, if the customer then spent $30 before the financial institution authorized the $75 payment, the credit union would charge the customer an overdraft fee because, at the time the credit union settled the $75 purchase, the customer’s available balance was negative. The customers sued the credit union to challenge the overdraft fees the credit union had charged the customers for transactions that did not exceed the customers’ balances at the time of purchase. The credit union responded with a motion to dismiss.
In Va. Is for Movers, LLC v. Apple Fed. Credit Union, No. 1:23cv576, 2024 WL 1091786, 2024 U.S. Dist. LEXIS 45281 (E.D. Va. Mar. 13, 2024) (opinion not yet released for publication), the court denied the credit union’s motion to dismiss. The customers sued the credit union for both breach of the credit union’s membership agreement, and for violating the Consumer Financial Protection Bureau’s (the “CFPB”) Opt-In Rule, promulgated as part of Regulation E in accordance with the CFPB’s authority to pass rules to carry out the Electronic Fund Transfer Act (the “EFTA”). The Opt-In Rule requires financial institutions that charge overdraft fees to provide their customers with written notice of their overdraft policies, as well as requiring them to provide their customers with “a reasonable opportunity” to “affirmatively consent.” Regarding the breach of contract, the court explained that a contractual term is ambiguous when it “can reasonably carry “two or more meanings, [be] understood in more than one way, or [refer] to two or more things at the same time.” When a contract is ambiguous, courts must “resort to parol evidence to ascertain the intention of the parties.” Here, the customer’s contract with the credit union (the “Contract”) stated that if a customer’s “available balance is not sufficient to pay the full amount of a . . . [transaction] that is posted to [the customer’s] account, [the credit union] may return the item or pay it, as described below.” The Contract further explained that the credit union may determine if a customer’s account is insufficient “at any time between presentation and [the credit union’s] midnight deadline.” Because the terms “account balance,” “posted,” and “presentation” are ambiguous, and determining the meaning of the terms is “unsuitable for resolution under a motion to dismiss,” the court denied the credit union’s motion to dismiss the customers’ breach of contract claims.
Regarding the Opt-In-Rule, the credit union argued that the customers’ lacked a cause of action under the EFTA, because the Opt-In-Rule was promulgated under the CFPB’s Regulation E, which did not provide a cause of action for violations thereof. However, the EFTA provides a cause of action for violations of any provision of the EFTA. The EFTA includes a provision that “[t]he terms and conditions of a consumer’s account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the [CFPB].” While overdraft fees are not electronic fund transfers, they are terms and conditions of electronic fund transfers. Accordingly, a claim that the credit union failed to properly explain its overdraft policy is a valid claim under the EFTA.
By: The Editors