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Class Action Alleging Multiple NSF fees for the Same ACH “Item”

As we have noted in other postings, plaintiffs continue to bring actions regarding bank fees charged for Overdraft or Not Sufficient Funds (“NSF”) fees. While these claims originally challenged posting order, they are now more creative. For instance, the “Authorize Positive Settle Negative” claims noted in an earlier post. One of the newest theories is that a financial institution should charge an NSF fee only once, no matter how many times that transaction or item is processed.

The lawsuits typically claim that the financial institution has “reprocessed” “multiple times” the ACH debit to create multiple NSF fees – implying that the consumer’s financial institution has made a unilateral decision to “reprocess” transactions.  Plaintiffs normally emphasize language in the deposit agreement – or a fee schedule or market materials – that discuss NSF fees “per item”. They argue that each ACH debit is an “item”, no matter how many times submitted and no matter how long of a time period is involved.

The ACH Network is operated by the Electronic Payments Association, known as “‘NACHA.”  See www.nacha.org. NACHA maintains detailed rules on ACH transactions which all financial institutions must follow in order to participate in the ACH network.  One rule is that the sending bank warrants that the ACH debit has been properly authorized.  Another rule is that the receiving financial institution must process transactions which are received.  A third rule is that financial institution sending an ACH debit may only do so three times.  ACH Operations Bulletin #1-2014 (explaining that the Originator may “reinitiate” an entry “a maximum of two times [a total of three] in an attempt to collect funds”)

When an ACH debit is return for insufficient funds, it is therefore the decision of the sending merchant/sending bank as to whether (and when) to represent the ACH debit. Sometimes such debits are not represented and the merchant seeks payment from the consumer through some other means.

The Eastern District of Virginia recently rejected this theory in Lambert v. Navy Federal Credit Union, 2019 WL 3843064 (E.D.Va. Aug. 14, 2019). There, plaintiff claimed that the Credit Union had violated the North Carolina UDTPA and had breached the deposit agreement when it charged a second NSF when a second ACH debit was submitted on a second day for the same debt. The Court rejected this theory and granted the Credit Union’s motion to dismiss. The Court ruled that each ACH debit was a separate “debit item” and that had been presented and therefore the Credit Union was entitled to charge another NSF fee.

There are a number of other ongoing actions asserting this “multiple NSF fee” theory and the law is not yet settled.  Further, the results may vary among financial institutions depending upon the wording of their deposit agreements. In addition, many of these suits also attack the charging of an NSF fee when a check is represented after it has been returned. Financial institutions should review their deposit agreements and marketing with this theory in mind. The results may vary among financial institutions depending upon the wording of their deposit agreements.