As a word of caution, the plaintiffs’ bar is filing a wave of class actions against credit unions and banks based on the assessment of overdraft fees. Some cases challenge practices, such as high-to-low sequencing of transactions, that plaintiffs argue generate excessive overdraft fees. Frequently, the cases focus on a scenario where a transaction is authorized based on a positive balance at the time the member uses a debit card, but later results in an overdraft fee based on a negative balance when the merchant presents the transaction for payment. The lawsuits also dissect form agreements and disclosures for any terms – such as “balance,” “available balance,” “presentment,” or “enough funds” – that conceivably could be ambiguous or misleading to lay members.

One such case, filed against Navy Federal Credit Union, recently settled for $24.5 million. Further increasing risk, carriers may deny coverage based on exclusions written into liability policies. Miller & Martin attorneys are currently defending similar claims filed by an aggressive and well-funded Nashville law firm that, partnering with out of state firms, has filed a series of cases against financial institutions in Tennessee, both credit unions and banks. A couple of years ago, our firm successfully tried a case against this same firm involving a different type of claim.

Now is a good time to review your financial institution's liability policies and its overdraft fee practices, agreements, and disclosures.