On October 25, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s order dismissing a class action alleging that an Illinois internet-based credit union breached its account agreement when it charged non-sufficient funds (NSF) fees to its customers. Plaintiff alleged the account agreement required the credit union to use the ledger-balance to assess NSF fees and only assess one NSF fee per transaction. The credit union argued that the account agreement permitted it to use the available-balance to assess NSF fees. The account agreement referenced “sufficient available funds” and further stated: “[c]hecks or other transfer or payment orders which are drawn against insufficient funds may be subject to a service charge as set forth in the Fee Schedule” and “[i]f the amount of the item presented for payment exceeds the total of all available overdraft sources, the item will be returned as non-sufficient funds (NSF) and you will be charged applicable fees.” The Fee Schedule listed a $25 “Non-sufficient Fund Item (each).”

The Seventh Circuit observed that in granting the credit union’s motion to dismiss, the district court rejected the plaintiff’s theory, stating: “the plain, unambiguous language states that a member needs sufficient available funds and reasoning that [plaintiff’s] proposed reading would render [the] use of the word ‘available’ meaningless.” The district court distinguished this case from an Eleventh Circuit case holding a similar account contract was ambiguous because the contract at issue in that case did not include “available” in close proximity to “sufficient funds.” The district court rejected the one NSF fee for multiple presentments theory based on the plural use of “fees” in the disclosure “you will be charged applicable fees.”

In recognizing that the credit union could have drafted the account agreement “more clearly than it did,” the Seventh Circuit affirmed the district court’s order by holding:

The fact that some institutions disclosed that they used the available-balance method differently or more clearly does not prove that the Agreement promised to use the ledger-balance method or that the Agreement is ambiguous. The lack of conspicuous disclaimers about how [the credit union] assesses NSF fees does not change the fact that the available-balance method better fits the contractual language than the ledger-balance method.

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Taken together, [the account agreement] and the Fee Schedule permit [credit union] to charge an NSF fee each time a payee attempts to make an ACH debit from an account with insufficient funds.

While the credit union ultimately prevailed, this case serves as reminder to review your account agreement disclosures with counsel to ensure that your fee assessment practices are  clearly disclosed to consumers and compliant with applicable law. As we recently commented, NSF fees have also been under attack through CFPB policy statements.