Xceed Financial Federal Credit Union has agreed to a confidential out-of-court settlement with a member who filed a class action lawsuit against the El-Segundo, Calif., credit union for unfair business practices by allegedly re-sequencing debit charge transactions to maximize overdraft fees.
“The parties have entered into a confidential settlement agreement to avoid time and expense of litigation and without admitting fault or liability of any kind,” according to court documents that officially dismissed the case. The agreement was reached July 20 in U.S. District Court in Los Angeles.
Cuthbert Shillingford, who joined the $751 million Xceed Financial in 2006, filed the lawsuit in April after noticing he was charged repeated overdraft fees of $29 each. He claimed some of the overdraft fees were not proper and resulted from Xceed’s re-sequencing of his transactions.
Calls to attorneys representing Xceed Financial Federal CU and Shillingford about the settlement were not returned. A call to Xceed Financial Federal CU also was not returned.
The Xceed Financial lawsuit represented the first against credit unions claiming the re-sequencing of debit card transactions to make more overdraft fee revenue.
In June, a San Jose, Calif.-based attorney filed seven class action lawsuits against credit unions in California, Illinois and Alabama alleging they committed deceptive business practices that involved “the systematic manipulation and re-ordering of electronic debit transactions from the highest dollar amount to the lowest dollar amount … to maximize the amount of overdraft fees collected.”
The lawsuit names $9.4 billion SchoolsFirst Federal Credit Union of Santa Ana, Calif.; the $6 billion Star One Credit Union of Sunnyvale, Calif.; the $1.3 billion Kern Schools Federal Credit Union of Bakersfield, Calif.; the $2 billion Educational Employees Credit Union of Fresno, Calif., the $8.4 billion Alliant Credit Union of Chicago; the $590 million Alabama Telco Credit Union of Hoover, Ala.; and the $1.25 billion America’s First Federal Credit Union of Birmingham, Ala.
If the accused credit unions are maximizing overdraft income, it doesn’t show in their financial performance reports. All but two reported fee and operating income to average assets below peer averages during first-quarter 2012. Star One reported only 0.16% fee income to average assets, compared to the peer average of 1.38%. Alliant’s fee income was only 0.19% of average assets.
Kern Schools was the lone exception, reporting 2.39% fee income to average assets. According to 5300 reports published on the NCUA’s website, Kern Schools collected $4.78 million from fees and $2.8 million in other noninterest income, which includes CUSO revenue.
Rick Heldebrant, president/CEO of Star One, told Credit Union Times last month his institution does not reorder transactions nor does it order them largest transaction to smallest during processing. He said the allegations in the suit are false.
Kern Schools President/CEO Steve Renock told Credit Union Times in June that he “believes the allegations are not correct at this time.”
The lawsuits come as the Consumer Financial Protection Bureau is researching overdraft practices and collecting information from financial service providers and the public.
In 2011, class action lawsuit Closson v. Bank of America resulted in a $410 million settlement. According to the settlement website, Bank of America was forced to pay up to $78 to customers who could prove they had an account at BofA, had account accessibility through a debit card, check card or another other card used for debit purchases, and paid at least one insufficient funds fee, overdraft fee, returned item fee, over-limit fee or similar fee related to a debit card transaction between 2000 and 2007.
On June 26, the Boston-based Citizens Bank settled its overdraft class action lawsuit for $137.5 million. The $30 billion Citizens settlement was part of a broader class action suit that reportedly involves more than 30 banks.