New Litigation Focuses on “Available” vs. “Actual” Balance
Overdraft protection provided by financial institutions brings with it responsibilities around disclosures to consumers. While actions surrounding high-to-low processing claims have largely abated, actions by the Consumer Finance Protection Bureau (CFPB) in 2015 shed light on a new trend among plaintiff’s attorneys. Specifically, new litigation centers around an alleged discrepancy between the disclosure statement and practices surrounding “available balance” versus “actual balance.”
In these situations, the actual balance is the amount of money in an account at any one time. The actual balance reflects transactions conducted, but does not reflect authorized and pending transactions. The available balance is the amount available in an account to use without incurring an overdraft fee. As an example, an account holder with an actual balance of $200 and authorizations or holds of $150, has an available balance of $50. In this example, an account holder that authorizes any purchase amount over $50.01 will have a negative available balance; however, the actual balance may reflect a positive balance in the account.
Questions of Disclosures, Information and Actual Practice
The core question here comes in two parts; first, are account holders charged overdrafts on actual or available balance? Whether this is unfair depends on the second, more subjective question: whether the account holder agreement conflicts with the actual practice, or in practice is it difficult for an account holder to understand when an account will be overdrawn? Obviously, there are consequences if fees are assessed in contradiction to the agreements or disclosures. It’s also likely that a financial institution could face significant risks if fees are collected based upon available balance but only an actual balance is displayed via the online or mobile banking platform, as an example.
Reducing Exposure at Many Levels
While no guarantee can be made that certain steps will prevent exposure to loss, some steps to reduce exposure may include review of the account agreement. In this instance, making sure that the account agreement matches the process for assessment of overdraft fees is important. It may be viewed as deceptive or unfair if the agreement or disclosure is silent on fee assessment. Along the same lines, reviewing fee disclosure statements is also important, in particular ensuring consistency between disclosures and practices in all areas, not just overdraft fees. It’s also a good time to review automated systems, to ensure that logic associated with the assessment of fees is consistent with disclosure and customer/membership agreement language, practices, and follows the automated processing on accounts. Finally, it’s always good to review and update agreements consistently, consulting with experienced legal assistance and compliance experts, as certain jurisdictions may have unique considerations.
Financial institutions have many factors to consider in managing the risk. Cases will have different outcomes depending on the unique circumstances of each financial institution, coupled with the jurisdictional uniqueness of each court. Complexity of agreements and limited consumer understanding of fees seem to be at the heart of the issue. The Pew Trust has recommended a visual model that may prove helpful, and clear language in agreements that avoids unilateral benefit is also important to consider.
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Products and services are provided by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued. Certain coverages may be provided through surplus lines insurance company subsidiaries of W. R. Berkley Corporation through licensed surplus lines brokers. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.
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