11th Circuit reverses dismissal of EFTA action alleging inadequate overdraft notice, denies EFTA safe harbor defense

Courts Appellate Eleventh Circuit Regulation E Overdraft Consumer Finance Opt-In EFTA

On August 27, the U.S. Court of Appeals for the 11th Circuit reversed the dismissal of a consumer’s action against her credit union, in which the consumer alleged the credit union used the wrong balance calculation method to impose overdraft fees. According to the opinion, the consumer filed suit against the credit union for using an “available balance” calculation method to impose overdraft fees on her account when the credit union allegedly agreed to use the “ledger balance” method at the time of account opening, in violation of the Electronic Fund Transfer Act (EFTA) and various state law contract claims. The district court dismissed the action, concluding that the agreements “unambiguously permitted [the credit union] to assess overdraft fees using the available balance calculation.”

On appeal, the 11th Circuit disagreed with the district court’s interpretation of the agreements. The court noted that while the opt-in overdraft agreement used by the credit union is based on Regulation E’s (the EFTA’s implementing regulation) Model Form A-9, the model does not address which account balance calculation method is used to determine whether a transaction results in an overdraft. The language chosen by the credit union, according to the appellate court, is “ambiguous because it could describe either the available or the ledger balance calculation method for unsettled debits” and therefore, does not describe the calculation in a “clear and readily understandable way” as required by Regulation E. Because the language was ambiguous, the consumer did not have the opportunity to affirmatively consent to the overdraft service. Moreover, the appellate court concluded that the credit union was not protected under the EFTA’s safe harbor because it used the Model Form A-9 text. Specifically, the appellate court reasoned that the “safe-harbor provision insulates financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy,” but does not provide a shield from allegations of inadequacy. Because the consumer argued that the credit union violated the EFTA due to its failure to prove enough information to allow for affirmative consent, the safe-harbor provision does not preclude liability.