Chase Bank Hit with Class Action Challenging Overdraft Fees on Previously Authorized Debit Card Transactions

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JPMorgan Chase Bank, N.A. is at the center of a proposed class action wherein a consumer claims the financial giant regularly assesses overdraft fees on transactions that “did not actually overdraw the customer’s account.”

In all, Chase “misleadingly and deceptively misrepresents” its overdraft practices in its marketing materials and account contracts, the 57-page lawsuit alleges, arguing that no reasonable consumer would have agreed to open a checking account with the bank or opt into its overdraft services had they known of the bank’s injurious conduct.

“Chase’s customers have been injured by Chase’s improper practices to the tune of millions of dollars bilked from their accounts in violation of their agreements with Chase,” the complaint reads.

The transactions for which Chase has allegedly charged improper overdraft fees are referred to in the complaint as “Authorize Positive, Purportedly Settle Negative Transactions” (APPSN). According to the suit, when a debit card transaction is authorized on an account containing positive funds to cover the transaction, Chase immediately sets aside those funds to cover that specific transaction and accordingly reduces the customer’s account balance.

As a result, a customer’s account should always have sufficient available funds to cover these debit transactions because Chase has already placed a debit hold on the funds, making them unavailable to cover subsequent transactions, the case relays.

The lawsuit alleges, however, that Chase, in violation of the terms of its account contracts, routinely assesses a “crippling” $32.00 overdraft fee for many of APPSN transactions when they settle, which often happens days later, into a negative account balance due to subsequent transactions, the lawsuit says.

Per the complaint, the “entire purpose” of the immediate debit hold of positive funds is to ensure that the money is available when the transaction settles—i.e., when the funds are transferred from the customer’s account to the merchant’s account.

Nevertheless, when a subsequent transaction pushes an account into overdraft status due to the unavailability of funds sequestered for debit card transactions, Chase charges an overdraft fee on the subsequent transaction and then hits customers with an additional overdraft fee when the original debit card transaction settles later, the suit claims. From the complaint:

The lawsuit argues that Chase’s overdraft practices are not only “deceptive, unfair, and unconscionable” but breach the contracts the bank made with customers. Per the complaint, customers’ deposit account agreements promise, “[i]n plain, clear, and simple language,” that Chase will only charge overdraft fees on transactions with insufficient available funds to pay the transaction. While Chase is not authorized by contract to charge overdraft fees on transactions that do not actually overdraw an account, “it has done so and continues to do so,” the suit scathes.

The lawsuit looks to represent all Chase checking account holders in California who, within the applicable statute of limitations period, were charged overdraft fees on transactions that were authorized into a positive available balance.

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