THE NAFCU JOURNAL March–April 2022 The most common situations that have resulted in litigation recently and are expected to continue or increase involve: ■ Overdraft fees ■ Insufficient or non-sufficient funds fees ■ ATM fees ■ Foreign transaction fees Overdraft and insufficient funds fees represent a key focus on claimants and their attorneys, especially with the increased reliance on debit cards as retailers and consumers moved away from cash to payments that required less contact during the pandemic. Approval and Settlement Timing Critical “We are seeing more overdraft claims where debit card transactions might be approved at the time of the transaction, but when the transaction is settled with the credit union, other charges have reduced the account balance to the point an overdraft fee is charged,” says Park. The situation is referred to as “authorized positive, settled negative” and is a practice that has been described in some of the banking agencies’ supervisory highlights as being one that is unfair and deceptive, he adds. Similarly, an insufficient or non-sufficient funds (NSF) fee poses risks related to presentment of the transaction for payment, says Park. “The problem occurs when the withdrawal or debit charge is first presented and an NSF fee is applied to the account, then the merchant resubmits the charge multiple times, which generates NSF charges for each attempt,” he says. “While the credit union sees each attempt as a separate transaction when presented, consumers and their attorneys say that each attempt is part of the same, original transaction.” The same argument is made in cases against credit unions for ATM fees. When a member makes a balance inquiry at an ATM other than the credit union’s network of ATMs to make sure the withdrawal won’t exceed the balance available, and then withdraws money, there are sometimes two ATM fees applied—one for each action. “The claims allege that both actions are part of the same transaction, so only one fee should be applied,” explains Park. As the retail industry becomes more global, and people order from online sites more frequently, it is often hard to tell where the retailer is located.4 This has led to claims filed against credit unions that charge foreign transaction fees, says Park. “Members are not surprised when foreign transaction fees are assessed when credit and debit cards are used outside the United States or Puerto Rico, but some members have been surprised to see those fees charged on purchases they made from their homes.” Steps to Mitigate Risk “The most important step a credit union can take to mitigate the risk of these types of lawsuits is to carefully and regularly review account agreements, disclosures and practices and determine whether everything aligns and complies with applicable law,” says Park. “All of these cases turn on what the account contract says, what policies and procedures require, what is required by law and what the member is told.” A combination of reviews of agreements, disclosures, policies and procedures along with proper training for employees is essential to mitigate risk, points out Park. “Another way to reduce risk, at least in the context of overdraft litigation, is a step some institutions, especially large banks, are taking—eliminating overdraft fees,” he says. “This is a strategic issue for some financial institutions as they look at the risk of a large claim settlement and legal fees compared to collection of the fees.” The choice to eliminate overdraft fees can be considered but is not required by the Consumer Financial Protection Bureau (CFPB) or the National Credit “The most important step a credit union can take to mitigate the risk of these types of lawsuits is to carefully and regularly review account agreements, disclosures and practices and determine whether everything aligns and complies with applicable law. All of these cases turn on what the account contract says, what policies and procedures require, what is required by law and what the member is told.” 22
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