Plaintiff Mary Quirk says she has paid $2,000 in overdraft (OD) fees to Liberty Bank in 2018. This is because, the complaint for this class action says, Liberty charges OD fees on items that do not actually overdraw customer accounts.
The class for this action is all persons who have a Liberty checking account who, within the statute of limitations, were charged OD fees on transactions authorized into a positive available balance. There is also a Connecticut Subclass for citizens of Connecticut in the above class.
When a customer makes a debit transaction, their bank normally sets aside funds to pay for that transaction. The available balance shown after that does not include these set-aside funds, and the account holder cannot choose to use them for other purposes. These funds should therefore always be available to pay this transaction, the complaint claims.
Unfortunately, before these transactions are settled, Liberty may then choose to process an intervening transaction, which results in funds being unavailable when the earlier transactions settle. Liberty then charges OD fees for the earlier transactions, which did not cause an overdraft at the time they were approved.
The complaint says, “Liberty is free to protect its interests and either reject those intervening transactions or charge OK Fees on those intervening transactions…” But it maintains that charging OD fees on transactions that did not overdraw the account when they were approved.
The complaint quotes Liberty’s checking account documents: “We may charge a fee every time a check or other debit against your Account is presented to us for payment which would result in a negative balance in your Account…” The complaint asserts, “In short, Liberty is not authorized by the Account Agreement, or any other contract, to charge OD Fees on transactions that have not overdrawn an account, but it has done so and continues to do so.”
It also quotes another section of the Account Agreement in which it says Liberty promises that it uses the available balance to determine whether a transaction causes an overdraft. This is the balance that the bank decreases when it approves a transaction and puts aside money to pay it.
Instead, according to the complaint, Liberty may knowingly authorize a later transaction to use consumer funds that it previously set aside for an approved transaction. This can happen because Liberty uses a batching process that briefly releases funds that were being held for a transaction and then reassesses whether the transaction will cause an overdraft.
The Consumer Financial Protection Bureau (CFPB) has looked into similar transactions. As quoted in the complaint, it says that “examiners found that the failure to properly disclose the practice of charging overdraft fees in these circumstances was deceptive.” This is because “the institutions assessed overdraft fees for electronic transactions in a manner inconsistent with the overall net impression created by the disclosures” for the account.” It also said that “the practice of assessing fees under these circumstances was found to be unfair.”