26 West Virginia Banker PLAINTIFFS PURSUING INCREASED CLASS ACTION CLAIMS FOR OVERDRAFT FEES AND CHARGES AGAINST CUSTOMERS By Bryce J. Hunter and Joshua L. Jarrell, Spilman Thomas & Battle, PLLC With plaintiff attorneys seeing potential large dollar settlements and verdicts, along with increased regulatory scrutiny, banks need to review their overdraft practices. As noted by the American Bankers Association, banks resolve most customer inquiries and disputes informally, with a phone call or through digital channels. Banks are incentivized in today’s hyper-competitive marketplace to do so to maintain customer satisfaction. When situations arise that require a more formal dispute resolution mechanism, many banks use arbitration because it is fair and more consumer-friendly than litigation. Historically, courts have recognized arbitration’s benefits as being less expensive than litigation with simpler rules, less hostile and intimidating for consumers, not disruptive to dealings among the parties, and more convenient and flexible in scheduling and location. In July 2017, the Consumer Financial Protection Bureau (CFPB) issued a rule that would have prohibited requiring consumers to waive their ability to participate in class action suits and would have drastically limited the use of mandatory arbitration agreements for financial products and services. Congress overrode this rule under the Congressional Review Act and, under the Dodd-Frank Act, any new arbitration rule would have to be based on a finding that it was in the public interest and for the protection of consumers. Several years ago, plaintiffs’ attorneys saw an opportunity and began to seek out potential bank customers to file class action suits against banks using the theory that banks wrongfully charged customers overdraft fees. Overdraft fees have been challenged in class action lawsuits under several different theories. Initially, many plaintiffs alleged banks violated account agreements by using customers’ available balances instead of current balances to determine whether a transaction was subject to overdraft fees. A second common theory has been that banks intentionally reordered pending transactions from largest to smallest in order to maximize overdraft and nonsufficient funds (NSF) fees. Additional claims include that banks improperly assessed debit card transactions by posting to accounts when funds were previously set aside when preauthorization holds were placed, and that banks used an ambiguous Regulation E form (explaining how overdraft fees are assessed) and, therefore, failed to comply with regulatory requirements. Their efforts have proven fruitful with settlements against Bank of America for $66.6 million and TD Bank for $41 million. In the past couple of years, plaintiff attorneys in Virginia and West Virginia have become more active in finding groups of bank customers impacted by NSF and overdraft fees and are bringing class action suits. In addition, consumer groups are ramping up efforts to convince consumers (and their attorneys) of ways to avoid arbitration provisions. For instance, federal law prohibits mortgage lenders from using or enforcing arbitration clauses, including second mortgages, reverse mortgages, and other security interests in a dwelling. Another federal law prohibits arbitration requirements applied to active military personnel or their dependents in contracts involving almost all types of non-purchase-money, closed-end credit. As of Oct. 3, 2017, the prohibition also applies to credit cards and other open-end credit. Despite the overturning of anti-arbitration provision rules, the CFPB, the OCC, and other banking regulators continue to criticize bank overdraft practices and have been warned of enhanced supervisory and enforcement scrutiny. In September 2022, the CFPB ordered Regions Bank to pay $50 million into the CFPB’s victims relief fund and to refund at least $141 million to customers harmed by its alleged illegal surprise overdraft fees. In October 2022, the CFPB issued supervisory guidance warning financial institutions that levying overdraft fees to consumers who would not reasonably anticipate the fees may constitute an unfair act or practice under the
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