There has been an increase in class action lawsuits against banks and credit unions related to the manner in which non-sufficient funds fees (“NSF fees”) are assessed, including two recent class actions filed in the U.S. District Court for the District of South Carolina. Generally, the plaintiffs allege that the financial institutions breach their account agreements by improperly charging multiple NSF fees for a single item or purchase. These situations typically arise when a customer initiates an electronic payment with a merchant but has insufficient funds in his/her account to cover the payment. This will cause the customer to incur a single NSF fee. However, automated clearing house rules, which are established by the National Automated Clearing House Association (“NACHA”), permit the originator, or the merchant with whom the customer did business, to reinitiate or re-present the payment two additional times in an attempt to collect funds. If the customer still has insufficient funds when the re-presentments occur, the customer will incur subsequent NSF fees.

At least one court has granted a bank’s motion to dismiss a breach of contract claim arising from this conduct. See Lambert v. Navy Fed. Credit Union, No. 1:19-CV-103-LO-MSN, 2019 WL 3843064 (E.D. Va. Aug. 14, 2019). However, other courts have denied such motions. See Perks v. TD Bank, N.A., No. 18-CV-11176, 2020 WL 1272246 (S.D.N.Y. Mar. 17, 2020); Noe v. City Nat'l Bank of W. Virginia, No. CV 3:19-0690, 2020 WL 836871 (S.D.W. Va. Feb. 19, 2020). Ultimately, whether or not the financial institution prevails at the motion to dismiss stage depends on the specific language of the applicable account agreements.

Financial institutions should review their account documents to ensure they adequately address this scenario, as any ambiguity in the documents will permit these claims to survive a motion to dismiss. Similarly, until agreements can be revised to address this situation, financial institutions may also want to reevaluate their general practices and procedures of charging NSF fees. Oftentimes, risks associated with charging multiple NSF fees can be substantially mitigated by maintaining strong relationships with customers and vendors alike.