ARLINGTON, Va.–Credit unions are being cautioned about increased litigation risk related to their overdraft policies and practices.
In a blog posting, NAFCU’s Brandy Bruyere, VP-regulatory compliance, warned that “while these kinds of lawsuits are not new, a couple of law firms have set up a website specifically aimed at credit union members who have been charged overdraft or insufficient funds fees on their accounts. There is a reportedly a coinciding social media marketing campaign to source potential plaintiffs as well, using ads on Facebook and similar. These ads encourage consumers to contact the firm to discuss, with an aim towards filing class action lawsuits.”
Bruyere urged credit unions to review what Reg E requires, which is set out in Section 1005.17. That guidance for "overdraft services” defines the term as “…assess[ing] a fee or charge on a consumer's account…for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account."
What’s Not Included
Bruyere noted that the term does not include overdraft lines of credit or services that transfer funds from another one of the consumer's accounts, and further explained that Section 1005.17(b) prohibits a credit union from assessing a fee ‘for paying an ATM or one-time debit card transaction’ unless the credit union provides: a written notice describing the credit union's overdraft service; a reasonable opportunity for the member to affirmatively consent or opt-in, and provides the member with confirmation of consent in writing along with a statement regarding the right to revoke consent.”
According to Bruyere, one firm named on the website aimed at credit union members as potential plaintiffs has sent demand letters to credit unions in multiple states.
“The demand letters tend to name a member of the credit union who would represent a proposed class of members who have allegedly been improperly assessed overdraft fees when their accounts held enough funds to cover the transactions,” Bruyere wrote. “The letter may also claim that the credit union's account agreement is vague. The letters also generally cite to several federal district court cases that were found in plaintiffs' favor. However, not all courts have reached the same conclusion.”
Bruyere is urging any credit union that has additional information to contact her at bbruyere@nafcu.org.