UMB Bank Debit Holds and Overdraft Fees Class Action

If your bank okays your debit transaction because you have sufficient funds in your account, can it later charge you an overdraft fee for that same transaction? The complaint for this transaction alleges that UMB Bank, NA authorizes debit transactions but later, at settlement, may claim there are now insufficient funds in the account and charge the customer an overdraft (OD) fee. According to the complaint, this violates UMB’s account agreement.

The class for this action is all individuals who, during the applicable statute of limitations, held UMB Bank checking accounts and were charged an overdraft fee on a debit card transaction that was authorized on sufficient funds and settled on negative funds in the same account for which the debit transaction was authorized and before the authorization hold expired.

Here’s how a normal debit card transaction works: When a customer goes to make a debit transaction, UMB checks the account balance. If the account contains sufficient funds, it permits the transaction. Then it adjusts the account balance, subtracting the amount of the debit transaction. It holds these funds aside, to pay the debit transaction at settlement (that is, when the bank actually pays the funds to the other party in the debit transaction). UMB calls this an authorization hold. The customer cannot use these funds for any other purpose.

UMB’s account agreement specifically authorizes this kind of hold, saying, “We have the right to maintain an authorization hold against your account until we receive the purchase transaction that matches the authorization hold.”

The customer should thus always have the funds available to settle the debit transaction. Yet UMB has charged customers OD fees for certain debit transactions. This is because the debit transaction can turn into an “Authorize Positive, Settle Negative” (APSN) transaction.

The complaint alleges, “Upon information and belief, … at the moment a debit card transaction is getting ready to settle, UMB 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.” Thus if the account is overdrawn by another transaction before the debit transaction’s settlement, the released debit transaction funds may “fall into the hole” of the overdraft, leaving insufficient funds to settle the debit transaction.

This process is “counterintuitive” and not understood by account holders. The complaint alleges that consumers “believe that a debit card purchase is the functional equivalent to a cash purchase, with the swipe of a card equating to handing over cash, permanently and irreversibly.”

The complaint claims that this operation allows UMB to earn more through OD fees.

According to the complaint, “UMB was aware of the consumer perception that debit card transactions reduce an account balance at a specified time—namely, the time the transactions are actually initiated—and the contract only supports this perception.”

Article Type: Lawsuit
Topic: News
Tags: Overdraft Fees, Your Bank