USAA Bank Forces Individual Arbitration of Excessive Overdraft Fee Claims

San Francisco, CAElizabeth Eiess overdrew her USAA bank account when she tried to pay her Citibank credit card bill of $358.85.The payment was returned, and USAA bank assessed an overdraft charge of $29.00. USAA then charged her twice more – every time Citibank submitted the payment – ultimately for a total of $87.00. In her class action excessive overdraft fee lawsuit Eiess claims that this was a violation of her deposit agreement and that it was part of a widespread pattern of abusive conduct toward depositors.

In her lawsuit Eiess asked for two kinds of relief:

• the first – for herself and others similarly situated – was that they get their money back and have their inconvenience, aggravation, etc., addressed through money damages.
• the second – for the public in general – was that the bank be prevented from being unclear in the future about when extra overdraft charges would be assessed.

Request number two seems high-minded. But it may have been the lawsuit’s undoing because of the way that U.S. District Judge Edward M. Chen interpreted the mandatory arbitration clause in USAA Bank’s Depositor Agreement. Ultimately, the plaintiffs seem to have come away with very little.

What the District Court for the Northern District of California did

Judge Chen ruled that claims for breach of contract and monetary relief, including restitution, should be arbitrated by each potential class member. As anyone who follows class action lawsuits realizes, this often spells the end for individual claims. Arbitration is expensive in time, if not in costs, especially for small dollar claims, and it more often than not ends in an award to the big corporate interest. The employer often gets to select the arbitrator.

He also ruled that Eiess’ request for injunctive relief — an order prohibiting USAA Bank from making misrepresentations to the public regarding its NSF fee policy in the future — may be litigated before the court. The litigation was stayed pending arbitration of the individual claims. Plaintiffs may understandably feel deflated.

Enforceability of arbitration clauses in consumer contracts in California

In 2011, in AT&T Mobility LLC v. Concepcion, the Supreme Court held that the Federal Arbitration Act preempted a California law that would have invalidated, as unconscionable, an arbitration clause containing a class action waiver. The arbitration clause in this lawsuit related to consumer mobile phone contracts but contained fairly typical boilerplate language. Some consumer advocates saw in this decision the end of class action consumer lawsuits.

Nonetheless, a steady stream of lawsuits has tried to limit the application of this and related legal principles. Eiess seems to have approached this challenge by linking the claims for monetary relief, which were facially subject to arbitration, to a non-arbitral claim on behalf of the public. The Northern District foiled this gambit when it severed the two requests for relief.

The only area in which California class action plaintiffs appear to have some success in defeating mandatory arbitration clauses seems to be with respect to employment contracts. Several large technology companies, including Google, Microsoft, Uber and Apple have voluntarily declined to force their employees to resolve sexual harassment claims in private arbitration. More recently, the California legislature passed a bill that would end mandatory arbitration in employment contracts beginning in January 2020. None of these efforts affects the larger area of consumer contracts, however.

A history of bad bank behavior

Eiess takes place against a background of federal scrutiny of USAA Bank’s consumer practices. In January 2019, the Consumer Financial Protection Bureau found that USAA failed to honor customers’ stop-payment requests on electronic transfers and had reopened customers’ previously closed deposit accounts with their authorization. USAA Bank ultimately agreed to pay a $3.5 million civil penalty and make $12 million in restitution to about 66,000 customers.

A month later, The Office of the Comptroller of the Currency, a bureau within the U.S. Department of the Treasury, filed a consent order against USAA Bank, because the bank had failed to implement and maintain a risk management program suitable for its size, complexity, and risk profile. The consent order also states that the bank “failed to implement and maintain an effective compliance management system that includes processes and practices designed to manage consumer compliance risk.”

The public relief sought in the Eiess Complaint appears to have been no mere afterthought, but a genuine concern founded in risk to consumers. Although this concern may ultimately be addressed in litigation in the California courts, the individual monetary claims of USAA Bank customers may be buried in arbitration proceedings.