ATM Fee Fraud

Court Dismisses ATM Fee Lawsuit Due to Prior Class Action Settlement Agreement

August 1, 2013 | Peter S. Lubin and Patrick Austermuehle

An Illinois court dismissed a lawsuit against a bank alleging deceptive fees for debit card transactions, ruling that a prior settlement in a class action lawsuit, of which the plaintiff was a class member, barred the suit. Schulte v. Fifth Third Bank (“Schulte 2”), No. 09 C 6655, statement (N.D. Ill., Jun. 15, 2012). The plaintiff acknowledged being part of the class, and by accepting the terms of the settlement agreement, the court held, the plaintiff had released the bank from any further claims related to ATM fees.

The original lawsuit alleged that the defendant “resequenced” debit card transactions during a posting period in an order from highest to lowest, rather than in chronological order. Schulte v. Fifth Third Bank (“Schulte 1”), 805 F.Supp.2d 560, 565 (N.D. Ill. 2011). This meant that the balance of the customer’s account drew down faster, leading to more overdrafts and associated fees. A class action lawsuit commenced in November 2009, and the U.S. District Court for the Northern District of Illinois approved a class settlement agreement in July 2011.

The Schulte 1 settlement applied to customers of the defendant from October 21, 2004 to July 1, 2010. The court applied a five-part test established by the Seventh Circuit Court of Appeals for determining if a class action settlement is fair:

Federal Court Dismisses Certain State Law Claims in Multidistrict Litigation Case Alleging ATM Overdraft Fee Fraud

July 26, 2013 | Peter S. Lubin and Patrick Austermuehle

A federal judge denied most of a motion to dismiss brought by multiple banks in a consolidated case alleging overdraft fee fraud. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302 (S.D. Fla. 2010). The Judicial Panel on Multidistrict Litigation (JPML) consolidated multiple claims into a single matter in the Southern District of Florida in order to deal efficiently with common pretrial matters. The plaintiffs asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (“GFFD covenant”), and many individual causes asserted common law breach of contract claims and state law consumer protection claims. The defendants filed an omnibus motion to dismiss, which the trial court granted in part and denied in larger part. The court dismissed claims under certain state consumer statutes, as well as claims based on the laws of states in which no plaintiffs lived.

The central issue of the litigation was the ordering of ATM transactions from highest to lowest, regardless of the order in which the account holder performed the transaction. This allegedly reduced the account holder’s total account balance more quickly, garnering more overdraft fees for the defendants. At the time the court rendered its order on the omnibus motion to dismiss, the litigation consisted of fifteen separate complaints, each brought against an individual bank. All of the fifteen complaints pending at the time of the court’s order involved breach of GFFD covenant claims. Five complaints were filed in California as putative class actions on behalf of California customers. Eight complaints were filed outside California, putatively on behalf of nationwide classes excluding California. One complaint was filed by a California resident and sought to represent a nationwide class. The final complaint was filed by a Washington resident on behalf of a class of Washington customers. According to the JPML, the consolidated litigation has involved one hundred separate complaints since 2009, with forty-four still involved as of March 5, 2013.

Court Retains Most of a Deceptive Business Practices Putative Class Action Against a Bank for Overdraft Fees – White v. Wachovia Bank

June 28, 2013 | Peter S. Lubin and Patrick Austermuehle

A federal court allowed most causes to proceed in a putative class action against a bank for allegedly fraudulent overdraft fees. White, et al v. Wachovia Bank, N.A., No. 1:08-cv-1007, order (N.D. Ga., Jul. 2, 2008). The plaintiffs, who alleged that the bank had recorded transactions out of chronological order to maximize overdraft fee liability, claimed violations of state deceptive trade practice laws and several claims related to breach of contract. The court denied the defendant bank’s motion to dismiss as to all but two of the plaintiffs’ claims.

The two lead plaintiffs opened a joint checking account with Wachovia Bank in 2007. They signed a Deposit Agreement that stated that the bank could pay checks and other items in any order it chose, even if it resulted in an overdraft. It also stated that the bank could impose overdraft charges if payment of any single item exceeded the balance in the account. The plaintiffs alleged in their lawsuit that Wachovia ordered its posting of transactions in a way that would cause their account to incur overdraft fees, even when they had sufficient funds to pay the items. They also alleged that the bank imposed overdraft fees when no overdraft had occurred.

The lawsuit, originally filed in a Georgia state court in February 2008, asserted violations of the Georgia Fair Business Practices Act (FBPA), O.C.G.A. §§ 10-1-390 et seq., and breach of the duty of good faith. The plaintiffs also claimed that the clause of the Agreement related to the ordering of transaction was unconscionable, that the bank had engaged in trover and conversion, and that it had been unjustly enriched. The defendant removed the case to federal court under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), which allows defendants to remove certain class actions to federal court. It then moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a lawsuit that “fail[s] to state a claim upon which relief can be granted.” To defeat such a motion, a plaintiff must show a plausible factual basis for their claims.

Class Action Plaintiffs Awarded $203 Million in Lawsuit Alleging Manipulation of Bank Overdraft Charges – Gutierrez v. Wells Fargo

June 14, 2013 | Peter S. Lubin and Patrick Austermuehle

A California federal court awarded $203 million in damages to a class of plaintiffs in Gutierrez v. Wells Fargo Bank, NA, 730 F.Supp.2d 1080 (N.D. Cal. 2010). The lawsuit alleged that the defendant bank overcharged the plaintiffs, who held deposit accounts at the bank, for overdraft fees, using a series of deceptive bookkeeping techniques. A similar bookkeeping trick was the subject of an Illinois lawsuit resulting in a settlement, Schulte v. Fifth Third Bank, 805 F.Supp.2d 560 (N.D. Ill. 2011).

According to the court’s ruling in the Gutierrez case, Wells Fargo charged individual depositors more than $1.4 billion in overdraft fees between 2005 and 2007, just in the state of California. Gutierrez, 730 F.Supp.2d at 1082. The lawsuit, filed on behalf of individual depositors, alleged that Wells Fargo used a bookkeeping trick known as “resequencing” to turn a single $35 overdraft charge into as many as ten overdraft charges. The bank would then hide this technique behind a “facade of phony disclosure.” Id. The court outlined how the bank would sequence transactions from the highest amount to the lowest amount, out of chronological order, often resulting in a negative balance in an account earlier than if it had sequenced the transactions in any other order. This maximized the amount of overdraft fees the bank could charge to the account. Id. at 1088.

The allegations in the Schulte case were similar to those in Gutierrez. Fifth Third Bank allegedly processed ATM and debit card transactions out of chronological order. During a posting period, the bank would process the largest transactions first, proceeding in high-to-low order. Schulte, 805 F.Supp.2d at 565. This allegedly almost guaranteed that, if a depositor overdrew their account during that posting period, the bank could collect more overdraft fees.

Series of ATM Fee Fraud Lawsuits Allege Banks Failed to Disclose Fees

December 1, 2009 | Peter S. Lubin and Patrick Austermuehle

Our Chicago ATM fee fraud attorneys keep an eye on consumer fraud litigation around the U.S. That’s how we discovered a series of lawsuits alleging that various ATM operators around the country committed ATM fee fraud in violation of the Electronic Funds Transfer Act. Pittsburgh law firm Carlson Lynch alleges that ATM operators failed to post a required notice about fees, in at least 12 lawsuits in Pennsylvania, Ohio, New York and Nevada. Most are proposed class actions, which means banks and ATM companies could pay up to $500,000 or one percent of their net work in each suit, if the classes are certified.

The most recent lawsuit to catch our attention was filed Oct. 13 in Rochester, NY. According to an Oct. 23 article from the Rochester Business Journal, ATM customers allege that Canandaigua National Bank & Trust Co. failed to post a notice that a fee would be charge on the outside of the machine, as the EFTA requires. The machines did have a notice provided electronically during the transaction, also a legal requirement. The purported class seeks return of the fees as well as statutory damages of up to $500,000 or one percent. Other cases have been brought against a Las Vegas company that focuses on providing ATMs to casinos and a series of banks and ATM operators in Pennsylvania and Ohio. Attorney Bruce Carlson of Carlson Lynch said his firm has already won at least one settlement of the maximum amount, but at least one of his claims has also been dismissed.

Our Illinois ATM fee fraud lawyers plan to keep a close eye on these cases as they progress. As Carlson told the Business Journal, the relevant language of the EFTA is not ambiguous about ATM operators’ duties. In order to legally charge a fee for using an ATM, the operator of the ATM must post a prominent notice of the fee’s existence and amount “on or at” the machine. It must also provide the notice on the ATM’s screen or on a paper receipt, before the customer completes the transaction and incurs the fee. Most ATM operators have no trouble meeting these requirements, but as these lawsuits demonstrate, a large handful appear to have failed. Consumers who are misled as a result are entitled to hold the ATM operator legally responsible for the extra fees and any other damages the court deems appropriate.

Illinois Man Sues Marriott for ATM Fee Fraud From Machine at Lincolnshire Hotel

November 16, 2009 | Peter S. Lubin and Patrick Austermuehle

As Chicago ATM fee fraud attorneys, we were extremely interested to see an ATM fee fraud lawsuit filed right here in the Northern District of Illinois. According to an Oct. 29 post from the Chicago Bar-Tender blog, Frederick Brill is suing Marriott International Inc. over alleged violations of the Electronic Funds Transfer Act. The case stems from ATM fees incurred by Brill’s use of an ATM in the lobby of the Marriott Lincolnshire, in the Chicago suburbs, in December of 2008. Brill and his attorneys are seeking class action status for the case, which they say could include hundreds of people.

The complaint in the case says Brill found no notice on the outside of the machine, but he was nonetheless charged a $2.50 fee to use it. This alleged conduct violates the EFTA, a federal law governing consumers’ rights when withdrawing, paying or moving money electronically, including through ATMs. ATM fees are legal under the EFTA, but ATM operators are required to post notices of the fees and their amounts on the outside of the machines. They must also put an additional notice on the screen of the ATM itself, or on a paper receipt, a requirement not at issue in the lawsuit. If ATM operators fail to meet these requirements, the EFTA allows injured consumers to sue to recover the fee, as well as statutory damages of a set amount per violation. If the case is a class action, as proposed here, injured consumers may recover attorney fees and statutory damages of up to $500,000, or one percent of the company’s net worth, whichever is lesser.

As consumer rights attorneys for more than two decades, we are pleased to see growing consumer awareness of this problem. ATM fees themselves caused a lot of grumbling when they were first introduced, but court rulings made it clear that it’s not illegal simply to charge an ATM fee. This has trained many consumers to shrug and accept outrageously high fees. By contrast, the language of the EFTA is very clear about the requirement to give notice of ATM fees on both the outside of the machine and on the screen itself. The law is designed to give consumers the opportunity to opt out of fees they don’t agree with — something that’s much less likely once they’ve already inserted their cards. Consumers have the right to make decisions about these fees with full information, and ATM operators shouldn’t be able to end-run around their legal obligations, whether out of negligence or deliberate choice.