BIRMINGHAM, Ala. – In the latest of a growing number of consumer suits over overdraft practices, a group of America’s First FCU’s members claims the credit union manipulates electronic debit transactions from the highest to the lowest dollar amounts, in order to create overdrafts and the accompanying fees.

The practice, known as batching transactions, has lead some members to pay overdraft penalties of $28 on small transactions, like a cup of coffee, according to the suit, filed yesterday in U.S. District Court for the Northern District of Alabama.

The suit names the credit union and its board of directors as defendants and asks for an injunction barring the credit union giant from continuing the practice, and to pay damages and repayment of overdraft fees charged to a class of members that could run into the tens of thousands.

The suit claims that rather than pay off the debit transactions that come in first, the credit union pays off the bigger ones first, draining accounts faster and make it more likely the member will incur an overdraft. The member, April Truss, says they were not told of this practice when they entered into the debit card agreement.

The suit comes as a growing number of banks have entered into multi-million dollar settlements to end similar overdraft suits, including JP Morgan Chase, Bank of Hawaii, Fifth Third Bancorp, UMB Bank and Bank of America, which paid out $410 million to settle its suit. At least one credit union, Xceed Financial FCU, has also been sued in recent weeks over its overdraft practices.

“By posting and deducting larger charges before the smaller charges, regardless of the order in which (the credit union) receives them—the consumers’ accounts are depleted sooner, to the severe detriment of the credit union account holder,” said the Alabama suit. “These mounting overdraft fees generate substantial revenue for the Defendant.”

Officials at the $1.3 billion credit union did not immediately return a call. Lawyers for the member did not respond to requests for comment.

 

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