Court holds credit union must face breach of contract claims over overdraft practices

Courts Credit Union Overdraft EFTA Class Action Breach of Contract

On November 8, the U.S. District Court for the District of Massachusetts granted in part and denied in part a credit union’s motion to dismiss a putative class action challenging the institution’s overdraft practices. As summarized in the order, the plaintiff alleged the credit union improperly charged overdraft fees when the “available balance” of her account, which was calculated by deducting pending debits and deposit holds, was insufficient to cover a transaction, even though the “actual” or ledger balance would have covered the transaction. The plaintiff brought multiple claims against the credit union, including breach of contract and Electronic Funds Transfers Act (EFTA) claims.

The credit union moved to dismiss arguing, in part, that the relevant account agreements referenced the “available balance” method for overdraft purposes and that the term is a “well-known bank term that has long been understood to mean the money in an account minus holds placed on funds to account for uncollected deposits and for pending debit transaction.”

The court disagreed, concluding that “available balance” is not a defined term, is ambiguous, and therefore its meaning presents a factual dispute that cannot be resolved on a motion to dismiss. The court allowed, however, the EFTA claim to proceed only for violations that occurred within one year of the complaint filing.