November 06, 2019

Overdraft: Compliance Blog outlines risks, updates CUs on litigation

comp blogIn response to an increase in questions from credit unions that have received notices related to overdraft class action lawsuits, NAFCU Vice President of Regulatory Compliance Brandy Bruyere provides some high level information to help credit unions analyze risks in today's Compliance Blog post.

In the blog, Bruyere notes that financial institutions have been facing class action claims related to overdraft programs for several years, highlighting that the claims often include a few elements:

  • violations of Regulation E, even where a credit union utilized the rule's model form;
  • assertions that the account agreement was violated when the account balance was calculated inappropriately and fees were assessed; and
  • multiple state law claims.

"More recently, the Regulation E claims are not as frequently seen in these cases," writes Bruyere. "This may be in part because the Electronic Funds Transfer Act, which is implemented by Regulation E, only allows one year for bringing a claim to court."

Bruyere also gives an update on some pending lawsuits against credit unions and the success rate of motions to dismiss.

"Overall, when reviewing motions to dismiss in the light most favorable to the plaintiff, courts in multiple states have found some merit to claims that account agreements are ambiguous as to when overdraft or NSF fees will be assessed," Bruyere writes. "To mitigate future risk, many credit unions have already reviewed their account agreements and overdraft opt-in agreements with outside counsel, considering various court outcomes in the jurisdictions where they operate."

Bruyere points to articles in The NAFCU Journal and Compliance Monitor, as well a recent Compliance Blog post, as resources on the topic. For more on overdraft litigation, read Bruyere's blog. NAFCU's Compliance Team publishes a new blog every Monday, Wednesday, and Friday on key regulatory issues affecting credit unions. Sign up to receive new Compliance Blog posts.