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First Merchants Bank Improper Overdraft Fees Class Action

First Merchants Bank (FMB) charges an overdraft (OD) fee of $37. That’s on the high side, but the complaint for this class action objects to something else. It claims that the bank charges OD fees on transactions that do not actually overdraw the account, violating its own Terms and Conditions of Your Account and overdraft notice documents.

The class for this action is all persons who hold checking accounts with First Merchants Bank and who were charged overdraft fees on debit card transactions that were authorized on sufficient funds but settled on negative available funds in the same amount for which the transaction was authorized.

The complaint alleges, “Overdraft Fees are among the primary fee generators for banks.” It refers to a report by Moebs Services, a banking industry market research company, as saying that banks took in an estimated $34.5 billion in overdraft fees in 2018. The complaint also points out that the fees tend to fall on those who can least afford them, including “[y]ounger, lower-income, and non-white account holders…”

When a debit card transaction is authorized, FMB puts aside funds from the customer’s checking account to cover the transaction. In doing this, it adjusts the account’s Available Balance to show that the funds have been subtracted. “As a result,” the complaint alleges, “customers’ accounts will always have sufficient funds available to cover these transactions because FMB has already held the funds for payment.”

However, the complaint alleges that “FMB still assesses crippling $37 Overdraft Fees on many of these transactions and misrepresents its practices in the Contract.”

How can a bank collect an overdraft fee if the account was never actually overdrawn? The complaint points to a process known as “Authorize Positive, Settle Negative” (APSN). The bank can impose it because transactions may settle as much as three days after they are authorized. At that point, under FMB’s processes, they may be settled into a negative balance.

How does this happen? If, in the time between the authorization and the settlement of the first transaction, another transaction overdraws the account, then when the first transaction comes up for settlement, FMB may consider it to further overdraw the account, even though it supposedly held aside the funds needed to pay it.

The complaint quotes the Consumer Financial Protection Bureau as calling this practice “unfair” or “deceptive.” It found that certain banks acted unfairly in charging fees for these ODs because “[c]onsumers likely had no reason to anticipate this practice, which was not appropriately disclosed.”

The complaint alleges that it is not properly disclosed in FMB’s account agreements.

Article Type: Lawsuit
Topic: Consumer

Most Recent Case Event

First Merchants Bank Improper Overdraft Fees Complaint

July 29, 2021

First Merchants Bank (FMB) charges an overdraft (OD) fee of $37. That’s on the high side, but the complaint for this class action objects to something else. It claims that the bank charges OD fees on transactions that do not actually overdraw the account, violating its own Terms and Conditions of Your Account and overdraft notice documents.

First Merchants Bank Improper Overdraft Fees Complaint

Case Event History

First Merchants Bank Improper Overdraft Fees Complaint

July 29, 2021

First Merchants Bank (FMB) charges an overdraft (OD) fee of $37. That’s on the high side, but the complaint for this class action objects to something else. It claims that the bank charges OD fees on transactions that do not actually overdraw the account, violating its own Terms and Conditions of Your Account and overdraft notice documents.

First Merchants Bank Improper Overdraft Fees Complaint
Tags: Overdraft Fees, Your Bank