BIRMINGHAM, Ala. – Alabama Telco CU is the latest credit union to move for dismissal of a new overdraft suit brought, claiming that neither law or its member agreements requires that debit transactions be processed in real-time.
In a motion filed last week with the U.S. District Court for the Northern District of Alabama, the $600 million credit union asserts that since there can be no guarantee that it receives all debit card transactions in chronological order it does not guarantee to its members it will process the transactions in real-time. There are many reasons why a transaction may not be received in proper time, such as delays in the presentment by both merchants and third-party processors, argues Alabama Telco.
The dismissal bid comes as California’s SchoolsFirst FCU and Kern Schools FCU won dismissals of similar overdraft suits brought against them, among nine credit unions sued on overdrafts.There are still overdraft suits pending against Educational Employees CU, Star One CU, Alliant CU, America’s First FCU and Legacy Community FCU, as well as Alabama Telco CU.
In its motion for dismissal, Alabama Telco argues that the members bringing the suit do not identify any ordering that the credit unions must use in posting transactions to an account.
“Likewise, the (suit) does not cite any statute, regulation, or contractual provision stating that the debit transactions must be posted in any particular order or that criticizes the hold method used by Telco,” argues the credit union. “Indeed, the discretion of financial institutions to post transactions in the manner they do has been explicitly recognized for years under both federal and state law.”
The Birmingham-based credit union also says a membership agreement signed by the plaintiffs in the case authorizes Telco to post debits to an account in “any order and warns that the posting order may affect the total amount of overdraft fees incurred by the customer.”
“Checks, drafts, transactions, and other items may not be processed in the order that you make them or in the order that we receive them. We may, at our discretion, pay a check, draft, or item, and execute other transactions on your account in any order we choose,” reads the member agreement. “The order in which we process checks, drafts, or items, and execute other transactions on your account may affect the total amount of overdraft fees that may be charged to your account.”
The plaintiffs in the suit, Rachel Camp and Ben Burgess, claim the credit union’s alleged practice of reordering debit transactions—instead of processing them in chronological order—is unfair and fraudulent because it is done in order to create more overdrafts. The credit union’s exposure in the case is enormous, as numerous banks have agreed to pay multi-million dollars amounts to settle similar overdraft suits in recent months.