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Financial Services Law Insights and Observations

District court rejects bank’s bid to dismiss NSF suit

Courts Class Action Arbitration Fees State Issues Breach of Contract


On February 19, the U.S. District Court for the Southern District of West Virginia denied a bank’s motion to dismiss a putative class action suit alleging the bank violated account agreements by routinely assessing more than one “non-sufficient funds fee [(NSF)] for a single attempted transaction.” According to the order, the plaintiff filed a lawsuit asserting various claims, including for breach of contract, unjust enrichment, and deceptive business practices in violation of the West Virginia Consumer Credit and Collection Act (WVCCCA) due to the bank’s alleged practice of charging multiple $36 NSF fees when customers try to make a purchase but are declined due to insufficient funds. The plaintiff claimed that the bank’s failure to clearly alert customers of its practice of charging more than one NSF fee “for a single transaction . . . is confusing or misleading conduct” and “an unlawful practice under the WVCCCA.” The bank moved to dismiss the claims, arguing among other things, that the plaintiff’s 2012 account agreement contained an arbitration clause and that federal law preempts the plaintiff’s state-law claims regarding fees imposed by national banks.

The court first disagreed with the bank on the matter of arbitration, stating that the arbitration clause contained in the 2012 account agreement may have been erased by updates the bank made in 2017 to the plaintiff’s account terms, which provided that the account would “be governed by the following terms and conditions” but omitted any mention of arbitration. As for preemption, the court ruled that the plaintiff’s state-law claims “are precisely the sort of claims that are not preempted by federal law.” (Emphasis in the original.) According to the court, “the proposition that ‘state law claims challenging fees imposed by national banks are expressly preempted by federal law’ is as overbroad as it is incorrect.” Furthermore, the court noted that the plaintiff’s “own principal citation makes this point clearly, noting that ‘it is . . . well established that true breach of contract and affirmative misrepresentation claims’—both state law torts—‘are not federally preempted.’” In addition, the court determined that it is unclear whether the bank’s account agreement governing the bank’s relationship with the customer authorized it to charge successive NSF fees per transaction. The court also concluded that it was not clear that the NSF fees could legally constitute billing errors—a contention made by the bank in its argument that the case was time-barred because the plaintiff failed to dispute the additional NSF fees within the 60-day window to challenge a billing error as permitted under the Electronic Funds Transfer Act. Explaining its reasoning, the court noted that it “struggles to conceive of a scenario in which a fee could be justified by a contract and assessed as a regular business practice, yet still be considered an ‘error’ within any reasonable definition of the word.”

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