Freedom First Credit Union Improper Overdraft Fees Class Action

This class action brings suit against Freedom First Credit Union, alleging it improperly charges overdraft (OD) fees on debit card transactions that were authorized on accounts with sufficient funds. The complaint alleges that this violates Freedom’s own contracts with customers and Regulation E of the Electronic Fund Transfer Act (EFTA).

Two classes have been defined for this action:

• The APSN Class is all those who, during the applicable statute of limitations, were Freedom checking account holders and were assessed an OD fee on a debit card transaction that was authorized on sufficient funds and settled on negative funds in the same amount for which the debit card transaction was authorized.
• The Regulation E Class is all US residents who have or had accounts with Freedom who were opted into the OD program for ATM and non-recurring debit card transactions through the use of an opt-in agreement which provided inaccurate or misleading information on Freedom’s OD program in violation of Regulation E and who were assessed OD charges on ATM or non-recurring debit card transactions since August 15, 2010.

At issue in this action are “authorize positive, settle negative” (APSN) transactions. These can occur because debit card transactions take place in two stages: authorization and settlement. When a customer undertakes a debit transaction, Freedom authorizes it, then puts aside funds to cover it from the customer’s checking account.

These funds are then no longer shown as part of the customer’s available balance and the customer cannot use them for anything else. “As a result,” the complaint alleges, “customers’ accounts will always have sufficient funds available to cover these transactions because [Freedom] has already held the funds for payment.”

However, the settlement of these transactions—the time at which the funds actually move from the customer’s account to the merchant’s—may take place days later. If, during the time in between, the customer’s account experiences an overdraft, the complaint alleges that Freedom charges an OD fee for the settlement of the debit transaction.

How does this happen? The complaint alleges that Freedom uses a “secret posting process” such that “at the moment a debit card transaction is getting ready to settle, [Freedom] releases the hold placed on funds for the transaction for a split second, putting money back into the account, then re-debits the same transaction a second time.” This process is not described in Freedom’s contract or its OD agreement, the complaint says.

“In sum,” the complaint claims, “there is a huge gap between [Freedom’s] practices as described in the Contract and [Freedom’s] actual practices.” Freedom thus provided its customers with “inaccurate and untruthful overdraft information” about its OD practices, therefore putting itself in violation of Regulation E.

Article Type: Lawsuit
Topic: Consumer
Tags: APPSN Transactions, Overdraft Fees, Your Bank