Overdraft protection lawsuits have focused on how transactions are lined up to clear—and whether members are aware of it.
Litigation related to overdraft protection has focused mostly on the timing of clearing, posting and settlement of payments through the various networks—and whether members are aware of them. While many overdraft operations experts say these events are almost always dictated by independent processes, some lawyers are still filing suit.
$9.1 billion ESL Federal Credit Union, Rochester, New York, is one credit union at which posting order for multiple payments is strictly chronological and automated, reports Rich Pulvino, manager of corporate communication and social media. Posting order is not manipulated to benefit or punish the member, he emphasizes.
Sabeh Samaha, president/CEO of Samaha & Associates, Los Angeles and Miami, reports that posting order is carefully programmed by most credit unions so that credits post before debits.
“The last thing a CU wants is for a member to be hit with an overdraft fee after they have made a deposit they expect to cover their payments,” he observes. This programming has long been a part of routine operations, he notes.
When a credit union makes a systems conversion, typically over a weekend, it commonly waives overdraft fees for the next few days, just to be safe, Samaha adds.
“If a payment is near real-time, but the deposit is slowed by batch processing, the CU system adjusts and puts the credit first,” he explains. “A system that can’t do this is not a good system.”
That some financial institutions manipulate posting to maximize fee income is “sad but true,” Samaha observes.
Founder/co-CEO of DoubleCheck Solutions, Los Angeles, Joel Schwartz says financial institutions can control the order in which items are posted and the point at which overdrafts start to occur. “It’s discretionary,” he says. “The CU can determine the timing.”
But Samaha adds that “there’s no predatory activity like that in my world. I think most CUs have embedded programming to protect their members.”
Litigators certainly have brought lawsuits, with some success, claiming this highly technical, nuts-and-bolts sequence of payments automation has not been adequately disclosed to customers or members. (Get more details about the legalities of overdrafts here.)
No financial institution is secretive about posting order, but that doesn’t ensure success, emphasizes Dave Martin, consultant and founder of Bankmechanics, Sugarland, Texas.
“They make that quite clear,” he says, “which doesn’t mean that members will remember it.”
Richard H. Gamble writes from Grand Junction, Colorado.