BEAVERTON, Ore. (1/10/12)--The Northwest Credit Union Association (NWCUA) is warning credit unions that a new class action lawsuit against a Portland, Ore.-based bank, alleging misleading practices to charge unfair overdraft fees, serves as a reminder to be consistent and transparent on implementation of overdraft policies.
Umpqua Bank joins several other banks recently sued with similar allegations about overdraft policies. Wells Fargo & Co., Bank of Hawaii, Bank of Oklahoma, Union Bank and Westamerica all have repaid millions of dollars in overdraft fees in recent years.
The Umpqua lawsuit focuses on allegations that the bank processed debit card transactions unfairly by reordering them from highest dollar amount to lowest, resulting in accounts that were depleted, said a press release from NWCUA. Other institutions process transactions in the order received, in real-time, or the smallest transactions first.
All financial institutions must choose a method by which they process debit card transactions, and the highest to lowest dollar amount method, meant to assure that consumers' most important payments are made first, is not uncommon, even though it may cause low-balance accounts to go negative more quickly, said NWCUA.
"No matter which method is selected," said NWCUA CEO John Annaloro, "someone is likely to complain. The key is to make sure members have easy access to all the necessary information and that fee assessments are done in a manner that is consistent and fair."
For credit unions, the issue is covered partly by Regulation E. As of July 2010, credit unions were no longer allowed to charge an overdraft fee on non-recurring debit card transactions unless members opted in to the overdraft program.
As a result, some members opt in to have transactions in excess of their balances approved and then pay a fee. Those who opt out either have transactions in excess of their balance declined or in some cases due to the electronic payments system, still get those transactions approved and pay no fee.
NWCUA has addressed the issue in the past and continues to work with its credit unions to develop strategies and policies that are fair to members without putting the credit union at risk, said Mary Sroufe, director of compliance services for the NWCUA. She noted that many credit unions in the association's compliance council already are moving to real time processing or planning to do so.