Credit Unions are a growing sector of the financial institutions which serve millions of Americans. One of their primary incentives used to attract customers is claiming to lower the cost of handling your money. However, appearances can be deceiving.
One of the services offered by many credit unions is a checking account which comes with a debit card that can be used for a variety of transactions, including buying goods and services, withdraw funds from ATM machines, schedule automatic withdrawals to pay bills, etc.
Many members of credit unions enter into agreements which allow the credit union to assess an overdraft fee if a check or debit card withdrawal is paid when there are “insufficient” or “unavailable” funds in the account. The right to impose such fees is governed by a Federal law known as Regulation E of the Electronic Fund Transfer Act, which requires the “informed consent” of the customer before such fees can be charged. However, we have found that in many cases, the consent given is not based on accurate representations or completely “informed”.
In recent years, it has become evident that many credit unions have used their own, internal definition of “available funds” which does not comport with the terms of the agreement with the customer (which usually refers to the “actual” balance) and, as a result, have been charging overdraft fees improperly.
An example of how credit unions manipulate the calculation of account balances reveals how serious the impact can be on a customer. Suppose on June 1, John had an “actual” account balance of $20.00. John has an automatic withdrawal for a car payment of $137.00 every 3rd of each month. On June 2, John, believing he has a $20.00 actual balance, buys $15.00 worth of gas using his debit card. The credit union’s “internal” definition of his “available balance” is that John’s account is in the negative, because it already deducted his upcoming car payment. It pays the gas debit charge and imposes a $37.00 overdraft fee. As a result, the account is $37.00 less than John thinks it is. (John believes he was a $5.00 balance, but the credit union says he has a negative $32.00 balance). Even after depositing $150.00 later in the day on June 2, to cover the car payment on the 3rd, because of the credit union’s improper calculation, he has created another overdraft (because his balance is now deemed to be negative $19.00), resulting in another $37.00 overdraft fee, because, according to the credit union’s figures, he still has a negative balance (now a negative $56.00 balance).
The credit union’s improper use of its “available” funds definition has cost John $74 and leaves him with a negative balance which, until he learns about the overdraft charges, may lead to additional assessments until he finds a way to bring up his account balance.
John’s predicament is not unusual, and credit unions are making huge sums by manipulating the way their customers account balances are calculated contrary to the agreed upon method and in violation of federal law.
Date Credit Debit Overdraft “Actual” “Available”
June 1 20.00 20.00
June 2 15.00 (gas) 37.00 5.00 -32.00
June 2 150.00 155.00 118.00
June 3 137.00 18.00 -19.00
June 4 37.00 18.00 -56.00
The scope of these deceptive practices is staggering, as indicated in a 2013 Report of the Consumer Finance Protection Bureau (“CFPB”) which found in its Study of Overdraft Programs, that credit unions generated $7.4 billion in overdraft fees in just 2012.
Recent litigation has targeted credit unions and banks which have taken advantage of millions of customers through assessments of fees utilizing schemes that maximize the possible number of expensive overdraft fees to be charged. Recent trial verdicts and settlements have resulted in courts ordering changes to credit unions practices and awarding customers hundreds of millions of dollars to pay back unfairly assessed overdraft fees.
The Law Offices of Michael B. Serling, P.C. is on the front line of litigation against credit unions and other financial institutions which try to unfairly charge their customers excessive and improper overdraft charges. If you suspect that your credit union or bank has unfairly charged you overdraft fees, please contact our office at (248) 647-6966. We will review your situation, at absolutely no cost, to determine whether your rights have been violated and if you are entitled to seek a recovery.