Xceed Financial Federal Credit Union has agreed to aconfidential out-of-court settlement with a member who filed aclass action lawsuit against the El-Segundo, Calif., credit unionfor unfair business practices by allegedly re-sequencing debitcharge transactions to maximize overdraft fees.

“The parties have entered into a confidential settlementagreement to avoid time and expense of litigation and withoutadmitting fault or liability of any kind,” according to courtdocuments that officially dismissed the case. The agreement wasreached 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 afternoticing he was charged repeated overdraft fees of $29 each. Heclaimed some of the overdraft fees were not proper and resultedfrom Xceed's re-sequencing of his transactions.

Calls to attorneys representing Xceed Financial Federal CU andShillingford about the settlement were not returned. A call toXceed Financial Federal CU also was not returned.

The Xceed Financial lawsuit represented the first against creditunions claiming the re-sequencing of debit card transactions tomake more overdraft fee revenue.

In June, a San Jose, Calif.-based attorney filed seven classaction lawsuits against credit unions in California, Illinois andAlabama alleging they committed deceptive business practices thatinvolved “the systematic manipulation and re-ordering of electronicdebit transactions from the highest dollar amount to the lowestdollar amount … to maximize the amount of overdraft feescollected.”

The lawsuit names $9.4 billion SchoolsFirst Federal Credit Union of Santa Ana, Calif.; the $6billion Star One Credit Union of Sunnyvale, Calif.; the $1.3 billionKern Schools Federal Credit Union of Bakersfield, Calif.; the$2 billion Educational Employees Credit Union of Fresno, Calif., the $8.4billion Alliant Credit Union of Chicago; the $590 million Alabama Telco Credit Union of Hoover, Ala.; and the $1.25billion America's First Federal Credit Union of Birmingham, Ala.

If the accused credit unions are maximizing overdraft income, itdoesn't show in their financial performance reports. All but tworeported fee and operating income to average assets below peeraverages during first-quarter 2012. Star One reported only 0.16%fee income to average assets, compared to the peer average of1.38%. Alliant's fee income was only 0.19% of average assets.

Kern Schools was the lone exception, reporting 2.39% fee incometo average assets. According to 5300 reports published on theNCUA's website, Kern Schools collected $4.78 million from fees and$2.8 million in other noninterest income, which includes CUSOrevenue.

Rick Heldebrant, president/CEO of Star One, told CreditUnion Times last month his institution does not reordertransactions nor does it order them largest transaction to smallestduring processing. He said the allegations in the suit arefalse.

Kern Schools President/CEO Steve Renock told Credit UnionTimes in June that he “believes the allegations are notcorrect at this time.”

The lawsuits come as the Consumer Financial Protection Bureau isresearching overdraft practices and collecting information fromfinancial service providers and the public.

In 2011, class action lawsuit Closson v. Bank of Americaresulted in a $410 million settlement. According to the settlement website, Bank of America was forced to payup to $78 to customers who could prove they had an account at BofA,had account accessibility through a debit card, check card oranother other card used for debit purchases, and paid at least oneinsufficient funds fee, overdraft fee, returned item fee,over-limit fee or similar fee related to a debit card transactionbetween 2000 and 2007. 

On June 26, the Boston-based Citizens Bank settled its overdraftclass action lawsuit for $137.5 million. The $30 billion Citizenssettlement was part of a broader class action suit that reportedlyinvolves more than 30 banks.