Recently, there have been lawsuits filed or threatened against financial institutions regarding their overdraft protection services and the charging of overdraft and non-sufficient fund fees. These are some of the common allegations being made against financial institutions:
- Available balance versus actual balance: financial institutions did not adequately disclose the following to their customers: (1) how the available balance is determined; and (2) how the available balance impacts whether an account is overdrawn and assessed overdraft fees.
- Non-sufficient funds fees: financial institutions did not properly disclose to their customers that they would be charged non-sufficient funds fees each time an item is presented for payment and returned for non-sufficient funds. For example, if one check was presented for payment twice and returned twice, financial institutions did not disclose to their customers that they would be charged non-sufficient fund fees each time the check was presented for payment, resulting in two non-sufficient funds fees to the customer.
- Debit card transactions: financial institutions did not properly disclose that they assess overdraft fees in the following scenario: when a customer uses his or her debit card in a transaction, and the financial institution places a preauthorization hold on funds in the account. At the time of the transaction, the customer had sufficient funds in his or her account to pay for the transaction; however, there is a subsequent transaction that causes the customer’s available balance to be reduced before the original debit card transaction posts to the customer’s account. As a result, at the time of posting, the account does not have sufficient funds to pay the original debit card transaction, which causes the account to be overdrawn and overdraft fees to be assessed.
Financial institutions should be aware of and understand the allegations being made in these lawsuits and take necessary steps to mitigate these risks.