By Howard Jay Harrington & Christian George
Overdraft and nonsufficient funds fees have been the subject of some controversy and scrutiny in recent years.
This month, CEOs of some of the nation’s biggest banks appeared for hearings before the U.S. House Financial Services Committee and the U.S. Senate Banking Committee on the subject, “Holding Megabanks Accountable: Oversight of America’s Largest Consumer Facing Banks,” where they were questioned on, among other things, OD and NSF fees.
Such fees have become a significant source of income for financial institutions (in dollar figures, if not as a percentage of total revenue), generating an estimated $15.47 billion in 2019, according to the Consumer Financial Protection Bureau.
As might be expected, OD/NSF fees also have become a significant source of income for plaintiffs’ attorneys, by way of class action litigation against financial institutions.
In the past decade, there have been numerous lawsuits filed in state and federal courts regarding financial institutions’ alleged failure to adequately disclose in their account documents how and when OD/NSF fees will be imposed, as plaintiffs’ attorneys claim is required by the Electronic Fund Transfer Act (and its implementing regulations, perhaps most prominently, Regulation E).
These lawsuits often attempt to bring claims on behalf of class members without regard to whether or not they actually read (or, in turn, relied upon) their governing account documents before incurring a fee.
In addition to the usual failure to state a claim challenges, these types of claims, at least in the 11th U.S. Circuit Court of Appeals, may face significant additional hurdles in the form of scrutiny on Article III standing.
The U.S. Supreme Court issued the opinion in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), explaining what a plaintiff must show to establish that an alleged harm is a concrete injury for standing purposes, with the punchline being: “No concrete harm, no standing.”
Since then, the 11th Circuit issued a series of opinions drilling down on the “concrete” requirement for claims arising out of statutory violations.
As noted by Circuit Judge Newsom at the outset of Laufer v. Arpan LLC, 29 F.4th 1268, 1270 (11th Cir. 2022): “Another day, another [11th Circuit] standing case.”
Most recently, the 11th Circuit issued its en banc decision in Hunstein v. Preferred Collection & Mgmt. Services, Inc., 19-14434 (11th Cir. Sept. 8, 2022), citing TransUnion and explaining that in “opinion after opinion, one standing issue continues to arise— what it takes to show concrete harm. But for this case and others like it, where the plaintiff alleges no harm besides the violation of a statute, the Supreme Court has cut a straightforward path. Like it or not, that path is ours to follow.”
Hunstein did not involve OD/NSF fees, but the analysis of what is necessary for establishing a concrete injury for Article III standing applies equally to such claims: “A ‘bare statutory violation’ is not enough, no matter how beneficial we may think the statute to be.”
An industry shift in financial institutions’ policies regarding OD/NSF is arguably already underway.
As recognized in a memo released by the House Financial Services Committee in advance of its hearing, a number of big banks have started to take steps to reduce overdraft fees for consumers following concerns raised about the excessive fee amounts being charged.
In the interim, what will come of the putative class actions arising from allegedly-statutorily-deficient OD/NSF disclosures, brought on behalf of those consumer accountholders who never read the disclosures in the first place?
After the series of 11th Circuit opinions on Article III standing issued in the wake of TransUnion, it may well be that such claims – often based on bare statutory violations – may no longer pass muster in this circuit.
Time will tell, but the courts within the 11th Circuit may see a downturn in consumer OD/NSF fee class actions.
In the age of electronic banking, many financial institutions – and not just the top megabanks – have customers across the country. Savvy plaintiffs’ attorneys likely will seek to institute their actions in jurisdictions they perceive to be more favorable on the threshold issue of standing.
Christian George is managing partner and Howard Jay Harrington is an associate attorney at Akerman LLP’s office in Jacksonville.
