Class Action Claims Oklahoma’s City National Bank Failed to Disclose Overdraft Practices
by Erin Shaak
Carter v. The City National Bank and Trust Company of Lawton, Oklahoma
Filed: January 14, 2021 ◆§ 5:21-cv-00029
A class action claims the City National Bank has failed to properly disclose its overdraft practices to customers and therefore charged illegal fees.
A proposed class action claims the City National Bank and Trust Company of Lawton, Oklahoma has failed to properly disclose its overdraft practices to customers and therefore charged illegal fees.
The 57-page lawsuit alleges City National has violated the Federal Reserve’s Regulation E by failing to provide a standalone opt-in disclosure agreement describing its overdraft practices, including its practice of charging overdraft fees when a customer’s “available balance” falls below zero and debiting accounts for “overdraft” transactions that are returned the next day as unpaid.
According to the case, the overdraft fees charged to customers were illegal given they were not properly informed of City National’s policies. From the complaint:
“Because Regulation E does not permit financial institutions to charge overdraft fees until they obtain affirmative consent from consumers after making an accurate disclosure of their overdraft practices in a stand-alone opt-in disclosure agreement, City National’s assessment of all overdraft fees against customers for onetime debit card and ATM transactions has been, and continues to be, illegal.”
Moreover, the case claims City National has violated its contracts with customers by charging more than one non-sufficient funds (NSF) fee for the same item despite stating in account documents that only one fee will be charged per transaction.
The lawsuit begins by alleging that City National’s opt-in disclosure agreement for its overdraft program fails to inform customers that the bank uses the “available balance,” and not an account’s actual balance, to determine whether an overdraft fee will be charged. When a customer initiates a debit transaction, City National deducts the amount of the transaction from a customer’s “available balance,” or essentially puts the amount on hold to cover the transaction, while the funds still remain in the customer’s account, according to the complaint. The result is that a subsequent transaction may still trigger an overdraft fee by causing the available balance to fall below zero even though the account still contains enough money to cover the transaction at the time it posts, the suit says.
“When these future holds are accounted for, the calculation can result in a negative ‘available balance’ existing only on paper, even though there is actually money in the account to cover a transaction without a negative account balance at the time of payment and posting,” the complaint reads.
The case notes that while this practice is unfair to customers, the issue is the bank’s apparent failure to disclose such rather than the practice itself. According to the suit, City National uses “inaccurate and/or ambiguous language” to describe what constitutes an overdraft and therefore fails to provide a “clear and easily understandable description” of its practices in its opt-in disclosure as required by Regulation E.
The lawsuit goes on to allege that City National fails to disclose to customers its practice of debiting accounts and labeling the transaction as an “overdraft” but then re-crediting the account the next day and returning the item as unpaid. Per the case, this practice artificially reduces the customer’s account balance and puts them at risk of incurring additional overdrafts in the time between when the bank withdraws their funds and re-credits them.
The complaint goes into detail about the defendants’ alleged overdraft practices, alleging the following:
“Here’s how it works. Say the account holder starts with a balance of $200. City National receives an account holder’s instruction for payment of a medical bill for $300 on Monday. City National determines the account does not contain enough money to cover the $300 bill payment but classifies the transaction item as an overdraft that it has paid and debits the account $300 and charges a $25 overdraft fee as a result. Thus, as of Monday, the account balance is reduced by $325 and now is in the negative, and it appears as though City National has covered/paid the $300 bill. All transactions big and small following that removal of $325, would be an overdraft triggering an overdraft fee even though there is $200 still in the account. But on Tuesday, City National instead returns the $300 bill unpaid and credits the account for the $300 debit the prior day and changes the $25 overdraft fee to a $25 NSF fee. The practical effect of this maneuver lowers the account balance on Monday by $300—which increases the likelihood that subsequent transactions on Monday will be assessed overdraft fees before the $300 is credited back to the account on Tuesday.”
Stressed by the plaintiff is that the lawsuit does not challenge the overdraft practice itself but City National’s apparent failure to disclose the conduct to customers in its opt-in disclosure agreement. According to the suit, the bank simply states that transactions are processed nightly on the day received.
Finally, the case claims City National charges multiple NSF fees on the same item when the bank’s contracts do not permit more than one fee to be charged as the result of a single transaction. As the suit tells it, City National charges a fee when it opts to return a check or ACH transaction due to lack of funds in a customer’s account but then charges another fee if the same item is resubmitted by the merchant. The lawsuit alleges that such a practice is not disclosed or permitted by the bank’s contracts and relevant disclosures.
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