Banks & Banking – Contract – Overdraft Fees – ‘Presentation’ – Unfair Trade Practices Claim

When a customer makes a debit-card purchase, the merchant first presents the transaction to the defendant-credit union for authorization and then later, sometimes days later, presents the transaction to the credit union for payment. The credit union’s challenged practice, which allegedly increases customers’ overdraft fees, is to sequester funds in the plaintiff-customer’s account at the time of the presentation for authorization but then to consider intervening transactions before determining whether there are sufficient funds in the account when the merchant presents the transaction for payment. The account agreement fails to define “presentation,” thereby allowing both parties to support their opposing arguments with reasonable interpretations of the agreement.

The court denies the credit union’s motion to dismiss.

The credit union interprets the account agreement to state that the designated time for deciding whether a cardholder has enough funds to cover a transaction is when the merchant requests payment, not when it requests authorization. On that basis, the credit union contends that the plaintiff-customer’s complaint does not state a claim for breach of the agreement even if the allegations are taken as true. In response, plaintiff insists that the agreement does not allow the credit union to impose overdraft fees at a time other than when authorization is requested and given and that, alternatively and at a minimum, the agreement is ambiguous.

The court concludes that the account agreement is ambiguous. The agreement states that the credit union’s “determination of an insufficient available account balance may be made at any time between presentation and [the credit union’s] midnight deadline with only one (1) review of the account required.” It further states that the credit union may charge a fee for insufficient funds “each time an item is presented against your available balance.”

The credit union construes this to mean that the overdraft determination occurs at the time a merchant presents an item for payment. But the terms “presentation”and “presented” are not defined. And it is unclear from context whether the “time an item is presented” necessarily means presentation for payment or may mean presentation for authorization.

Indeed, for purposes of the debit-card transactions at issue, the merchant must submit requests for both authorization and payment.

The definition of available balance—the “amount of money in your account that is available for you to use”—bolsters plaintiff’s interpretation. From the cardholder’s perspective, her use of funds occurs at the point of sale. This definition reasonably suggests that she may spend whatever is available “to use” at the time of a given purchase without fear of incurring an overdraft fee for that purchase. The credit union’s interpretation, by contrast, is counterintuitive because it requires assessing the availability of funds long after the cardholder has used them at the point of sale.

In addition, by warning cardholders that a fee may result if the authorization hold doesn’t cover the whole purchase, the account agreement implies that there is no such risk when the authorized amount and the settlement amount are the same.

Looking at the entirety of the account agreement, its terms are capable of several reasonable interpretations. Thus, the agreement is ambiguous, so the court denies the credit union’s motion to dismiss the claim for breach of contract.

Unfair Trade Practices

Among other things, the complaint alleges that the credit union “misleadingly and deceptively misrepresents” its overdraft practices; “exploits its contractual discretion by implementing these practices to gouge its customers”; employs a “scheme to extract funds from account holders”; carries out this scheme through a “secret posting process” for account transactions; “knowingly [authorizes] later transactions that it allows to consume available funds” held for previously authorized transactions; and “willfully engage[s] in the improper assessment of” overdraft fees. In addition, the complaint alleges that the contracts at issue are adhesion contracts, that the imposition of overdraft fees in these circumstances are contrary to the expectation of ordinary consumers, and that overdraft processes similar or identical to defendant’s have been deemed unfair and deceptive by regulatory authorities.

Viewing these allegations in a light most favorable to plaintiff, the court concludes that they suffice to plead aggravating circumstances, particularly given the context of a consumer adhesion contract. At a minimum, the allegations could support an inference that the credit union used its power and position inequitably. In addition, plaintiff has alleged “deceitful conduct”—such as the alleged secret posting process—to effectuate the purported breach.

At this early stage, these allegations are sufficient to defeat a motion to dismiss.

Motion denied.

Moose v. Allegacy Federal Credit Union (Lawyers Weekly No. 020-030-21, 12 pp.) (Adam Conrad, J.) Jean Sutton Martin, Gerard Stranch and Martin Ramey for plaintiff; Lee Denton, Jeffrey Patton and Bruce Jacobs for defendant. 2021 NCBC 30