A New York federal district court has issued an order allowing a putative class action to proceed against Trustco Bank, finding that the plaintiff had stated a claim for breach of contract based on the bank’s assessment of non-sufficient funds (NSF) fees.  The complaint in Jenkins v. Trustco Bank alleges that Trustco’s assessment of multiple NSF fees on the same transaction constituted 1) a breach of the covenant of good faith and fair dealing, 2) unjust enrichment, 3) a deceptive act or practice under New York General Business Law § 349, and 4) a breach of contract.  The court granted Trustco’s motion to dismiss on all but the breach of contract claim.

The order is significant because it is the second class action suit against Trustco this year that the New York federal district court has allowed to proceed on a breach of contract theory.  The other suit, Lamoureux v. Trustco Bank, also concerns the bank’s NSF and overdraft fee practices.  The court in Jenkins noted that plaintiffs in both suits “alleged the same breach to an identical contract” and that the bank relied on the same portions of the contract for its defense in each case.  The court then adopted the reasoning and finding from Lamoureux that the bank’s contractual language about NSF fees is ambiguous, allowing the claim to survive the motion to dismiss.

At issue in both suits is the bank’s practice of treating each instance that a payment is re-presented as a new item subject to NSF or overdraft fees.  Trustco maintains that, under its contract, each subsequent attempt by a merchant to re-present a payment that failed to go through the first time may be handled and treated as a separate “item.”  The plaintiffs argue that multiple attempts to process the same transaction must be treated as a single “item” as the term is used in the contract.  In finding that each interpretation was reasonable, the court in Lamoureux observed that the language in Trustco’s account agreement was similar to the terms used by other banks that several other courts had deemed ambiguous.

Both Jenkins and Lamoureux are awaiting further proceedings.  We will continue to monitor each for significant developments as they move forward.

Last month, the FDIC issued new supervisory guidance on multiple NSF fees arising from the re-presentment of the same unpaid transaction.  These cases are examples of the class action lawsuits that financial institutions have faced alleging breach of contract and other claims, some of which have resulted in substantial settlements, based on the failure to adequately disclose re-presentment NSF fee practices.  We have handled and are presently defending several of these types of class actions.  While neither the OCC, the FRB, nor the CFPB have taken a formal public position on the issue of re-presentment NSF fees, these agencies have already made overdraft practices a focus of concern and we expect them to follow the FDIC’s position on re-presentment NSF fees. 

Overdraft and NSF fees also continue to be a focus of state regulators, with the New York State Department of Financial Services and the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation having issued guidance to their supervised institutions about overdraft and NSF fees.