Court orders credit union to pay $5 million to settle overdraft allegations

Courts State Issues New York Overdraft NSF Fees Consumer Finance Credit Union Settlement Class Action EFTA Regulation E

On June 27, the U.S. District Court for the Northern District of New York granted final approval of a class action settlement, resulting in a defendant credit union paying approximately $5.2 million to settle allegations concerning illegal overdraft/non-sufficient funds (NSF) fees and inadequate disclosure practices. As described in plaintiffs’ unopposed motion for preliminary approval, the defendant was sued in 2020 for violating the EFTA (Regulation E) and New York General Business Law (NY GBL) § 349. According to plaintiffs, defendant charged overdraft fees and NSF fees that were not permitted under its contracts with its members or Regulation E. Plaintiffs’ Regulation E and NY GBL liability theories are premised on the argument that defendant’s “opt-in form did not inform members that these fees were charged under the ‘available balance’ metric, rather than the ‘actual’ or ‘ledger’ balance metric”—a violation of Regulation E and NY GBL § 349. The plaintiffs’ liability theory was that defendant’s “contracts did not authorize charging overdraft fees when the ledger or actual balance was positive.” 

Under the terms of the settlement, defendant is required to pay $2 million, for which 25 percent of the settlement fund will be allocated to class members’ Regulation E overdraft fees, 62.5 percent will go to class members’ GBL overdraft fees, and 12.5 percent will be allocated to class members’ breach of contract overdraft fees. Defendant is also required to pay $948,812 in attorney’s fees, plus costs, and $10,000 service awards to the two named plaintiffs. Additionally, the defendant has agreed to change its disclosures and will “forgive and release any claims it may have to collect any at-issue fees which were assessed by [defendant] but not collected and subsequently charged-off, totaling approximately $2,300,000.”