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CUs winning dismissals on overdraft suits
MADISON, Wis. (9/7/12)--Credit unions have begun winning court dismissals on a variety of grounds in multiple, duplicative lawsuits that have been filed against financial institutions over overdraft policies and processes.

However, new cases continue to be filed in the cookie-cutter, class-action lawsuits, which claim financial institutions manipulate the posting order to beef up overdraft fees. The Credit Union National Association is monitoring the trend and urging credit unions to make sure they are in compliance with regulations related to their overdraft policies and disclosures of any fees.

Out of nine lawsuits brought this year against credit unions, three suits have been dismissed by the courts.  The U.S. District Court for the Northern District of California dismissed two cases on Tuesday against credit unions because they had not been served with the complaints.  In such cases, the judge rules that plaintiffs "voluntarily dismiss, without prejudice, their claims against all defendants" in the matter. Although the plaintiffs were different in these two cases, they were represented by the same attorney.

A third lawsuit was dismissed last spring after a credit union argued that the complaint should be arbitrated instead of litigated under the terms of the credit union's membership agreement, which the member had signed.

In a case before the U.S. District Court in Alabama, a credit union on Aug. 31 filed a motion seeking dismissal of a lawsuit. In its motion, the credit union made several arguments for dismissal that may be of interest to credit unions, even though part of the case is based on state law and would not apply to other jurisdictions.

Among the arguments the credit union presented:

  • The lawsuit is misdirected since it is the merchant, not the credit union, who places a hold on a transaction that can delay access to funds. Transactions are not received by the credit union for settlement in any particular order, and often are received days after the transaction.
  • Plaintiffs have authorized the credit union to post debits in any order in their member account agreement, which authorizes overdraft charges.
  • The standard posting practices "are not new--either to the banking industry or to the laws that regulate it. Indeed, the discretion of financial institutions to post transactions in the manner they do has been explicitly recognized for years under both federal and state laws," according to the court document.
  • Plaintiffs fail to cite regulations that criticize the hold processes, and the Uniform Commercial Code "explicitly provides credit unions wide discretion in determining the order in which they will post transactions" to members' accounts.
  • Agencies that oversee credit unions, including the Alabama Credit Union Administration, National Credit Union Administration and the Federal Reserve Board," have issued regulations and guidance relating to overdraft charges, but have not dictated any particular transaction processing order."
The motion seeking dismissal also argued that the plaintiffs have failed to state a claim upon which relief can be granted, that some of the claims for breach of contract are not recognized under Alabama law, and plaintiffs admit they can avoid overdrafts with minimal self-diligence.

Dozens of lawsuits have been filed across the country against banks, resulting in a number of multimillion-dollar settlements. It was only recently that credit unions became targets of lawsuits that used templates that were worded identically. Most of the lawsuits claim financial institutions charge excessive overdraft fees as a result of manipulative posting and transaction holding practices.


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