Banking and Finance Law Daily Failure to identify account balance overdraft calculation method violated Reg. E
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Tuesday, August 27, 2019

Failure to identify account balance overdraft calculation method violated Reg. E

By Nicole D. Prysby, J.D.

An opt-in notice for overdraft service did not identify whether the credit union used the available or the ledger balance calculation method for unsettled debits and therefore did not describe its overdraft service in a "clear and readily understandable" way.

A credit union’s notice describing its overdraft service plausibly violated the Electronic Fund Transfer Act because it did not identify whether the bank used the available or the ledger balance calculation method for unsettled debits, held the Eleventh Circuit Court of Appeals. As a result, the notice does not describe the overdraft service in a "clear and readily understandable" way as required by Regulation E (12 CFR Part 1005). And the credit union is not protected from liability by the safe harbor, based on its use of the Model Form A-9 text, because the safe-harbor provision protects financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy, but not against claims based on their failure to make adequate disclosures (Tims v. LGE Community Credit Union, August 27, 2019, Pryor, J.).

Alleged EFTA violation. The consumer opened an account at the LGE Community Credit Union. She alleged LGE agreed to impose overdraft fees only when her ledger balance (as opposed to her available balance) was insufficient to cover a transaction. She alleged that LGE broke that promise by assessing overdraft fees when, based on her ledger balance, there was enough money in her account to cover the transaction in question. She brought claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the EFTA.

EFTA claim goes forward. The court concluded that the consumer plausibly alleged that LGE violated Reg. E, which requires financial institutions to give consumers a "notice…describing the institution’s overdraft service" (12 CFR 1005.17(b)(1)(i)). LGE’s Opt-In Agreement stated only that "[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway" and is nearly an exact copy of Reg. E’s Model Form A-9. But Model Form A-9 does not address which account balance calculation method a financial institution should use to determine whether a transaction results in an overdraft, and the Opt-In Agreement LGE provided is ambiguous because it could describe either the available or the ledger balance calculation method for unsettled debits. As a result, it is plausible that the notice does not describe the overdraft service in a "clear and readily understandable" way as required by Reg. E. It is also plausible that the consumer had no reasonable opportunity to affirmatively consent to LGE’s overdraft services because a notice that does not adequately convey the circumstances in which a financial institution will charge overdraft fees may not provide a consumer all the information she needs to give plain and clear consent. Here, the consumer plausibly did not have a reasonable opportunity to affirmatively consent because the notice gave her no way to know whether LGE would use the available balance or the ledger balance method to charge her overdraft fees.

The court also concluded that LGE is not protected from liability by the safe harbor, based on its use of the Model Form A-9 text. The safe-harbor provision insulates financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy but does not shield them for claims based on their failure to make adequate disclosures. A financial institution strays beyond the safe harbor when communications within its overdraft disclosure inadequately inform the consumer of the overdraft policy that the institution actually follows. The consumer had no dispute as to the form of the notice, only as to substance, and the safe-harbor provision does not preclude liability when the content of the Reg. E disclosure is at issue.

Other claims go forward. The consumer’s breach of contract claim goes forward because the plain language of the agreements provided by LGE is ambiguous as to the account balance calculation method LGE will use to assess overdraft fees. Because the language remains ambiguous after considering both the plain language of the contracts and the Georgia canons of construction, the parties’ intent will become a question for the jury. For similar reasons, her claim for breach of the implied covenant of good faith and fair dealing goes forward.

The case is No. 17-14968.

Attorneys: Edward Adam Webb (Webb Klase & Lemond, LLC) for Carol Tims. Stephen Paul Dunn (Howard & Howard Attorneys, PLLC) and Kevin A. Maxim (The Maxim Law Firm, PC) for LGE Community Credit Union.

Companies: LGE Community Credit Union

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