The U.S. Court of Appeals for the Eleventh Circuit this week reversed a lower court decision to dismiss a class action suit against LGE Community Credit Union in Marietta, Ga., regarding its overdraft policies.
That means the case goes back to district court for a possible trial.
Carol Tims, a member of the credit union, asserted she was promised that the $1.4 billion-asset LGE would use the “ledger balance” method to determine if the amount in her account was insufficient to cover a transaction. The credit union argued its policies clearly stated it intended to use the “available balance” method.
According to court records, LGE allegedly charged Tims a $30 overdraft fee on two occasions. Tims alleged her ledger balance had sufficient funds in her account to cover the transaction in question, but based on her available balance – the money in her account after considering pending debits and deposits – there was not.
LGE did not immediately respond to a request for comment.
Tims filed a consumer class action lawsuit against LGE in district court alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Electronic Fund Transfer Act. The district court dismissed those claims, finding the agreements between two parties permitted LGE to assess overdraft fees using the available balance calculation method.
In reversing the district court’s decision, the appellate judges said they disagreed with the district court’s interpretation of the contracts. Instead, they concluded the agreements were “ambiguous as to whether LGE could rely on an account’s available balance, rather than its ledger balance, to assess overdraft fees.”
The appeals judges noted the EFTA, and subsequent Regulation E, required financial institutions to secure consumers’ “affirmative consent” to overdraft services through an opt-in notice.
The appeals court found there were two agreements between Tims and LGE: the “Opt-In Agreement” and the “Account Agreement.” LGE asked consumers to sign the Opt-In Agreement to obtain their consent to LGE’s overdraft policies, but it did not clarify which balance calculation method LGE employs, stating only that “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.”
The second agreement between Tims and LGE, the Account Agreement, contained a “payment order” provision explaining that in processing items drawn on a consumer’s account, LGE’s “policy is to pay [the items] as we receive them.”
The Court of Appeals noted both parties argued the Opt-In and Account Agreements are “unambiguous,” with each asserting the account balance calculation method was spelled out in its favor.
Tims argued the phrase “enough money in your account” unambiguously referred to the ledger balance because the term “account” is presented without limitation or modification, such as a reference to “available” funds.
LGE argued the term “enough” in the agreements unambiguously referred to the available balance. In its motion to dismiss, LGE used the dictionary definition of the word “enough” then noted “enough” is synonymous with “available.”
“After careful review, we disagree with both parties that the agreements are unambiguous,” the appeals judges wrote in their decision. “Neither argument persuades us. Neither the Opt-In Agreement nor the Account Agreement clearly articulated which balance calculation method LGE was using to determine when unsettled transactions would trigger an overdraft. The contracts are ambiguous.”
Because the contract remains capable of two reasonable constructions, the appeals judges found the parties’ intent will become a question for the jury should neither party subsequently be granted summary judgment.
“The district court therefore erred in dismissing Tims’s claim for breach of contract,” they wrote.
The appeals judges also agreed the district court erred in dismissing the claim that LGE breached the implied covenant of good faith and fair dealing under Georgia law, and further said they “think it plausible” that LGE violated EFTA Regulation E.
“As we have explained, the Opt-In Agreement LGE gave Tims is ambiguous because it could describe either the available or the ledger balance calculation method for unsettled debits. As a result, it is plausible that the notice does not describe the overdraft service in a “clear and readily understandable” way,” the judges wrote.
A number of credit unions have been hit with lawsuits regarding their overdraft practices. Earlier this month, United Federal Credit Union in St. Joseph, Mich.,
In July, VyStar Credit Union in Jacksonville, Fla.,
