Credit Union Excessive Overdraft Fees

Credit unions are not-for-profit organizations run cooperatively by members. They are different from banks in how they are run, but may still face many of the same legal issues as banks, including claims about mismanagement, consumer fraud and overdraft fees. Credit union lawsuits can be filed by members whose credit unions have not been properly managed or they may be filed by the National Credit Union Administration (NCUA), which has regulatory responsibility over them.

Banks are for-profit institutions owned by a small group of individuals. Credit unions are actually not-for-profit organizations owned by their members. They may be chartered by federal or state governments. Federal credit unions are governed by the Federal Credit Union Act. In addition to being regulated by the NCUA, all credit unions are insured by the National Credit Union Insurance Fund.

The purpose of a credit union is to serve members, rather than to maximize profits. Surplus profits made by credit unions are paid to members as dividends. Account holders elect the board of directors and have a say in how the credit union is run. What most members notice, though, is that credit unions offer lower fees than banks.
  Although credit unions are run cooperatively, they can still face lawsuits for mismanagement of funds, failing to disclose fee structures or other improper practices. In recent years, credit unions have been sued for director and officer mismanagement, deposit and withdrawal issues, wrongful foreclosure and employment, and training matters.

In 2017, a fair housing organization claimed that Colorado-based, Bellco Credit Union discriminated against women by denying them mortgages because they were on maternity leave. At about the same time an employee who had worked for 15 years for Park Community Credit Union sued, alleging that she was harassed and ultimately fired because she is gay.

New York Attorney General Eric T. Schneiderman filed suit against Southeast Financial Credit Union and The College Network alleging students who were given student loans for programs run through The College Network were not told their student loans were through a credit union.

The bulk of account holder-driven litigation, however, appears to focus on credit unions’ unfair practices with respect to overdraft fees. Account holder’s rights are protected by a variety of consumer protection laws.
  Much like banks, some credit unions have been hit with overdraft lawsuits, alleging their practices associated with overdraft fees are not properly disclosed. Among allegations made against credit unions are that the fees are based on available balance, not actual balance, the fee structures are not clearly disclosed and members do not receive accurate information about their available balances. For some credit union members, the confusion reportedly involves holds on debit transactions, which are not always made clear to members.

Credit unions have also faced allegations that they improperly reordered transactions to maximize income from overdraft fees. In July 2017, Florida-based MidFlorida Credit Union agreed to pay $2.375 million to settle a class action lawsuit regarding its overdraft fee practices.

As many as ten other credit unions were reportedly under investigation for deceptive overdraft fee practices as of June, 2017, only the month before. Among these were Meriwest Credit Union, Pentagon Federal Credit Union and Boeing Employees Credit Union.

Another class action lawsuit claims that Landmark Credit Union illegally assessed overdraft fees on transactions when there was enough money in the checking account to pay for the transactions.

In 2015, Orange County's Credit Union reportedly agreed to pay $1.8 million to settle complaints about unlawful overdraft fees.
 

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Last updated on Nov-13-19