Philadelphia Federal Credit Union Accused of “Gouging” Consumers with Multiple NSF Fees

Philadelphia, PA “Gouging” is often implied, but rarely actually said excessive overdraft fee lawsuits. But there it is, in the class action lawsuit’s description of Philadelphia Federal Credit Union’s practice of charging multiple $28 insufficient fee charges for the same transaction and PFCU’s legal duty not to “[exercise] its discretion to enrich itself and gouge its customers.” It’s hot language, but a simple story.

This is not a narrative about complicated bank accounting practices that distinguish between “actual” and “available” account balances. It is not about holds, offsets, batching and other intricacies of electronic banking. This is about $28 charged over and over again to customers who can ill afford it. The most puzzling question may be why an institution with approximately $1 billion in assets, one of the largest credit unions in Pennsylvania, would need to make money this way.
 

Dailey v. Philadelphia Federal Credit Union

Aliesha Dailey had a checking account with PFCU. The account documents she signed permit the credit union to charge $28 per item that is returned due to insufficient funds. The natural inference, she argues, is that only one $28 fee will be charged.

Ms. Dailey overdrew her account on February 6. 2019 and was charged a $28 NSF fee. Thereafter, without her authorization, PFCU resubmitted the item and charged her another $28. The lawsuit is not about the initial charge. It’s about the subsequent one, and similar charges assessed against similarly situated customers.

PFCU’s practices are common

For those who follow credit union lawsuits, PFCU’s practice of assessing multiple NSF fees for the same transaction without the customer’s request may seem familiar. Earlier this year, for example, VyStar Credit Union was accused of routinely assessing multiple non-sufficient-funds fees on the same item.  City National Bank of West Virginia has been sued for the same thing.

Even Ms. Dailey’s complaint acknowledges that First Citizen’s Bank, First Hawaiian Bank and Klein Bank also routinely charge multiple NSF fees even when the customer does not ask the bank to re-process the transaction. Those institutions at least disclose the practice, although it is not at all clear that disclosure remedies an arguably predatory practice.
 

Remedies under Pennsylvania law

Dailey sets out a basic breach of contract case and claims that PFCU’s actions violate the common law of Pennsylvania with respect to both contracts and the related covenant of good faith and fair dealing. The gravamen of this count is that:
“By exercising its discretion to enrich itself by gouging its consumers, PFCU consciously and deliberately frustrates the agreed common purposes of the contract and disappoints the reasonable expectations of Plaintiff and members of the Class, thereby depriving them of the benefit of their bargain.”

In addition, the complaint advances a statutory claim that PFCU’s conduct violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The three parts of this count allege that the credit union was guilty of:

• representing that goods or services have characteristics, uses, or benefits that they do not have;
• failing to comply with the terms of any written guarantee or warranty given to a buyer; and
• engaging in any other deceptive conduct which creates a likelihood of confusion or misunderstanding.

To take the long view, however, it seems odd that <I>Dailey </I>, like the other multiple NSF fee cases, relies on provisions of state consumer protection law – as if the issue were defective toasters – rather than shady banking practices.

Should overdraft fees be regulated like payday loans?

For credit unions like PFCU, overdraft fees are a major source of revenue. According to a 2010 report by Georgetown University Law Professor Adam Levitin, overdraft fees comprise  six to seven percent of credit union gross revenues. Noninterest income (like overdraft fees) has become an increasingly important portion of bank revenues. “Overdraft protection” agreements are not a feature added for the convenience of happy spenders. This is part of the banks’ basic business model.

Furthermore, consumers appear to be treating overdrafts as a source of short term credit. This is an expensive and desperate feature of family financial planning for many Americans, as well.

An interesting policy argument follows that if overdraft fees are a regular banking and family budgeting practice then they should be regulated like payday loans. So far, that has not happened. In fact, under the current administration, some argue payday loan regulation has been weakened. Strengthening overdraft fee regulation may be a play for another day.

In the meantime, however, state consumer protection lawsuits appear to be an effective way to pursue the problem of excessive overdraft fees and have produced some generous settlements for credit union consumers.