Lawsuit: S.A. credit union fees ‘unfair’
Multiple overdraft charges made on same transaction, customer alleges
San Antonio’s Credit Human Federal Credit Union has been hit with a proposed class-action lawsuit that alleges it has charged overdraft fees on accounts that were not actually overdrawn.
Credit Human also is accused of routinely charging multiple fees for overdrafts or nonsufficient funds on the same transaction. The charges are in breach of promises made in its customer account agreements, the complaint adds. The suit describes the credit union’s overdraft practices as “unfair and unconscionable”
The action was brought by San Antonio resident Antoinette Hughes, but it estimates the size of the potential class of plaintiffs is in the thousands. The credit union has more than 237,000 members. The suit, filed Monday in state District Court in Bexar County, seeks more than $1 million in damages.
Credit Human spokesman Chris Armstrong said it only received the complaint Wednesday and had no immediate comment. The credit union had about $3.6 billion in assets as of Dec. 31.
Credit Human joins a long list of financial institutions that have been sued over their overdraft practices in recent years.
Last year, a court approved a $70 million settlement of a case brought against TD Bank. The bank subsequently agreed to pay $97 million in restitution to about 1.4 million customers and a $25 million civil penalty to settle allegations brought by the federal Consumer Financial Protection Bureau.
In late 2019, San Antonio’s USAA Federal Savings Bank reached a confidential settlement by a California woman who alleged the bank assessed her three $29 overdraft charges, for a total of $87, each time she tried to pay a single $358.85 credit card bill using her bank account in 2018.
Overdraft fees are a huge source of income for financial institutions. U.S. consumers paid $15 billion in overdraft and bounced-check fees in 2016, Credit Karma reported earlier this year, citing data from the Consumer Financial Protection Bureau.
Credit Human’s overdraft and NSF fees have generated no complaints with the CFPB, the agency’s database shows.
Hughes’ lawsuit comes as Frost Bank — the largest regional bank based in San Antonio — an
nounced it would not charge an overdraft fee for certain customers when they overdraw their checking accounts by up to $100 — as long as they have monthly direct deposits totaling $500.
“Frost understands it’s human to make a mistake and wants to show customers they matter by giving them this overdraft grace where they need it,” the bank said in a statement.
Frost previously charged $35 for each overdraft, up to $175 a day, spokesman Bill Day said. That still applies for overdrafts over $100, but most overdrafts are for less than that amount.
The bank hasn’t determined what the change will cost it in revenue. It generated $32.3 million in overdraft and insufficient fund charges on consumer and commercial accounts last year, down from $42.3 million in 2019.
In her complaint against Credit Human, Hughes alleges she attempted to make a $25 payment to Charter Communications in late 2018. Credit Human rejected payment of the transaction because of insufficient funds in her account and charged her a $25 NSF fee. She does not dispute that fee.
But Credit Human rejected the payment on two more occasions, dinging her $25 each time, the suit adds.
“Plaintiff understood this payment to be a single transaction as is laid out in Credit Human’s Account Documents, capable at most of receiving a single NSF Fee,” the suit says. “The same pattern occurred numerous times for Plaintiff, with Credit Human charging Multiple Fees for a single transaction.”
Hughes also is challenging Credit Human’s alleged practice of charging overdraft fees on debit card transactions known as “Authorize Positive, Purportedly Settle Negative Transactions,” or APPSN, transactions. According to Hughes’ lawsuit, at the moment a debit card transaction is authorized on an account with positive funds to cover the transaction, Credit Human immediately reduces a customer’s checking account to cover the amount of that transaction.
As a result, the suit adds, a customer’s account will always have sufficient funds available to cover debit card transactions because Credit Human already has put aside those funds for payment. In other words, the funds are unavailable to cover subsequent transactions.
This means subsequent transactions can incur overdraft fees due to the unavailability of the funds set aside for those debit card transactions.
“Still, despite keeping those held funds off-limits for other transactions, Credit Human improperly charges OD fees on those APPSN Transactions, although the APPSN Transactions always have sufficient available funds to be covered,” the suit says.
“There is no justification for these practices, other than to maximize Credit Human’s OD Fee revenue,” the complaint adds.
The account agreement documents covering overdraft fees specifically state that Credit Human will only charge such fees on transactions that have insufficient funds, the suit says.
Hughes alleges that at the moment a debit card transaction is ready to settle, “Credit Human does something new and unexpected by its customers during the middle of the night, during its nightly batch posting process.
“Specifically, Credit Human releases the hold placed on funds for the transaction for a split-second, putting money back into the account, and then re-debits the same transaction a second time,” she adds. This “secret step” allows Credit Human to charge overdraft charges that never should have been subject to them.