In the last two weeks, both the CFPB and OCC have been critical of bank overdraft practices and the CFPB has warned of enhanced supervisory and enforcement scrutiny. The potential costly impact that such increased scrutiny could have on private litigation is demonstrated by the recent proposed settlement in Lowe v. NBT Bank, N.A., a class action lawsuit pending in a New York federal district court. Under the proposed settlement, the bank agrees to make a cash payment of $4.25 million to current and former customers and to forgive or waive $1.5 million in uncollected overdraft (OD) fees. (Of the $4.25 million, about $1.3 million is to be paid to consumers who allegedly were improperly charged multiple NSF fees on the same transaction.)
The lawsuit challenged the bank’s practice of charging OD fees on “Authorize Positive, Purportedly Settle Negative Transactions” (APPSN Transactions). According to the complaint, the bank would immediately reduce a customer’s checking account balance when a debit card transaction was authorized on an account with sufficient funds to cover the transaction. This was accomplished by setting aside funds in the checking account to cover the transaction and adjusting the customer’s displayed “available balance” to reflect the subtracted amount. The plaintiffs alleged that despite putting aside sufficient funds to cover an authorized debit transaction, the bank would later assess an OD fee on the same transaction if it purportedly subsequently settled into a negative balance, thereby resulting in an APPSN Transaction. A negative balance would be created if a subsequent transaction on the checking account was more than the “available balance.” The plaintiffs alleged that the bank would charge an OD fee on the APPSN transaction when it settled even though the APPSN Transaction had sufficient available funds to cover it when it was authorized.
CFPB examiners, in the CFPB’s Winter 2015 Supervisory Highlights, found a similar practice to be unfair and deceptive. In addition to claiming that the bank’s practice of charging OD fees on APPSN transactions constituted a breach of contract and violated the covenant of good faith and fair dealing, the plaintiffs alleged that it constituted an unfair and deceptive act or practice in violation of New York law. As support for their claims, the plaintiffs cited to the Winter 2015 Supervisory Highlights.