Pentagon Federal Credit Union headquarters. Credit/Adobe Stock
The $29.3 billion Pentagon Federal Credit Union asked a federal appeals court to overturn a lower court’s decision that granted class-action status to a member’s lawsuit alleging the credit union unlawfully charged a $5 “pay-to-pay" fee for consumer loan payments made by phone or online.
The lawsuit was originally filed in May 2023 by PenFed member Joseph Boczek of West Virginia, who claimed the $5 fee was not authorized by state law or contract. Under West Virginia’s Consumer Credit and Protection Act (WVCCPA), financial institutions are prohibited from collecting such fees to cover service costs or generate profit, according to the civil complaint. The law only applies to consumer loans, not business loans.
U.S. District Court Judge Thomas S. Kleeh in Clarksburg granted the Boczek’s lawsuit class certification on Nov. 3. PenFed petitioned the U.S. Court of Appeals for the Fourth Circuit in Richmond, Va., on Nov. 17 to hear arguments to vacate that certification. The appeals court has not yet ruled on the petition.
“An essential element of the claim is proof that the loan proceeds were used primarily for personal, family, or household purposes, which necessarily requires an individualized inquiry,” the McLean, Va.-based credit union wrote in its court filing. “The District Court abused its discretion by certifying a class without explaining how that essential question can be answered on a class-wide basis. Indeed, the opinion does not even acknowledge the applicable standard or cite any record evidence.”
According to precedent, the issue of whether the WVCCPA applies to a loan is determined on how the debtor actually used the funds, rather than more readily identifiable facts such as the debtor’s status as an individual or a corporate entity, PenFed argued.
“Since class members are impossible to identify without extensive and individualized fact-finding or minitrials,” Boczek failed to satisfy the ascertainability and predominance requirements for class certification,” the credit union stated.
Several courts have denied class certification in other cases due, in part, to fact-intensive inquiry necessary to determine whether a transaction was for consumer purposes, which the credit union argued that the same rationale should have been used in this case, according to PenFed.
However, Judge Kleeh wrote in his ruling regarding the ascertainability requirement that an individualized inquiry into the primary purpose for each loan is not necessary because the class is limited to consumer loans. He also wrote it is not necessary to individually determine if the loans were used for personal, family or household purposes because PenFed’s own records established that there were 1,497 fees collected on 422 consumer loans.
Judge Kleeh also concluded the common questions of law and fact presented in Boczek’s case outweigh the claimed differences among class members that could require individualized inquiries, which satisfied the predominance requirement for class certification.
Boczek, a small business owner, joined PenFed in June 2022 and borrowed funds to refinance a vehicle loan. He claimed he made monthly loan payments and paid a $5 convenience fee to make ACH payments by phone seven times.
In his lawsuit, Boczek argued that PenFed charged the $5 convenience fee to other West Virginian PenFed members 1,497 times on 422 accounts. That could amount to $7,485 in aggregated damages, which could theoretically seek $2,050,919 in damages, plus legal fees, according to the credit union’s court filing.
READ MORE: PenFed’s Class Certification Appeal.
Peter Strozniak can be reached at peter.strozniak@arc-network.com
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