Pelican State CU OD Fees on Non-Overdraft Transactions Class Action

Can a transaction overdraw an account if funds have previously been set aside to pay it? The complaint for this class action alleges that Pelican State Credit Union sets aside funds for debit transactions but then, in certain situations, when the transaction comes up for settlement, it charges the accountholder an overdraft (OD) fee to pay it. The complaint alleges that these “Authorize Positive, Purportedly Settle Negative” (APPSN) transactions violate the terms of the bank’s agreements with the accountholder.

Banks make a great deal from OD fees. In 2018, the complaint says, a banking industry market research company claimed that banks earned around $34.5 billion in OD fees. However, the complaint notes that such fees are most likely to be assessed on the most vulnerable customers. The OD fees at issue in this case, the complaint alleges, are unfair.

When a customer attempts to make a debit transaction, Pelican must first authorize it. If the account has sufficient funds to pay the transaction, the complaint alleges, Pelican authorizes it and then sets aside the funds to pay it. This is the “Authorize Positive” part of the transaction.

At this point, according to the complaint, Pelican reduces the accountholder’s available balance by the amount of the transaction. The funds are set aside and not available to the accountholder for anything else, so that the complaint alleges the account will always have sufficient funds to pay it. However, the complaint claims that Pelican still sometimes charges a $30 OD fee on these transactions.

According to the complaint, Pelican determines which transactions are overdrafts based on the account’s available balance. The complaint quotes Pelican’s account documents as saying that the available balance is the “Ledger Balance, less any holds due to pending debit card transactions and hold on deposited funds.”

The problem arises when, before that transaction is settled, a subsequent transaction overdraws the account and the account is negative when the earlier debit transaction settles. This is the “Purportedly Settle Negative” part.

The complaint suggests that, at settlement, Pelican momentarily releases the hold for the debit transaction, then re-debits it: The complaint says, “Because these withdrawals take place upon initiation, the funds cannot be re-debited later.”

Although other financial institutions do have the same practice, the complaint alleges that they generally explain it in their account documents. However, the complaint claims that Pelican’s account documents do not support this practice.

The class for this action is all persons who hold checking accounts at Pelican State Credit Union and who were charged OD fees on debit transactions authorized on sufficient funds and settled on negative funds in the same amount for which the debit card transaction was authorized and before the authorization hold expired.

Article Type: Lawsuit
Topic: Contract
Tags: Breach of Contract, Breach of the Covenant of Good Faith and Fair Dealing, Overdraft Fees, Your Bank