On July 19, the U.S. District Court for the District of Delaware issued a decision that should draw the attention for banks that charge overdraft fees for overdraft protection.
In Miller v. Del-One Federal Credit Union, plaintiff Joanne Miller alleged that the defendant credit union violated Regulation E, promulgated under the Electronic Fund Transfers Act and administered by the Consumer Financial Protection Bureau (CFPB), as well as committed fraud under the Delaware Consumer Fraud Act. Specifically, the plaintiff alleged that the defendant’s overdraft policy considers the customer’s available balance before paying items and, additionally, calculates that available balance by subtracting the customer’s upcoming or scheduled payments. Notably, the CFPB provides an official form detailing the recommended overdraft disclosures to be provided to consumers, and further, Regulation E includes an express safe harbor for financial institutions that use the model form. The credit union argued that its policy was accurately explained by the federally mandated overdraft opt-in form in combination with two other documents provided to customers.
The court sided with the plaintiff, finding that Del-One Federal Credit Union failed to revise the official form language provided by Regulation E to explain accurately its overdraft procedures. The court agreed with the plaintiff that the allegations constituted fraud, rather than simple breach of contract. The court also rejected the credit union’s argument that the opt-in form should be read in conjunction with additional forms, finding that all information regarding the credit union’s overdraft policy must be included in the opt-in form.
The opinion, though brief, contains two major compliance concerns for financial institutions. The first is the court’s validation of a fraud claim based on allegedly inaccurate disclosure of overdraft policies. The second is the court’s finding that the official overdraft fee opt-in form included in Regulation E must not only adapt to the institution’s policies, but also state all associated overdraft procedures. In sum, as regulators continue to crack down on overdraft fees, financial institutions now face additional pressure from federal courts.
A copy of the court’s opinion is available here.