LOS ANGELES – Xceed Financial FCU, the first of nine credit unions sued over their purported overdraft practices, has agreed to an out-of-court settlement of its case, short of the suit being proclaimed a class action and with both parties agreeing to pay their own legal fees.
The settlement means the credit union escapes the suit, filed in April, with minimal costs. A class action certification could have entailed a multi-million-dollar settlement, like those being entered into by at least a dozen banks in similar cases.
The confidential settlement comes just two weeks after Xceed Financial asked the judge to direct the dispute to arbitration instead of the courtroom, as a similar case against BB&T Bank was directed in Florida last month. Xceed said a provision in the 44-page Truth-In-Lending Act disclosures signed by all members requires that all disputes between the member and the credit union are resolved in arbitration.
In his suit, filed in the U.S. District Court for the Central District of California, Cuthbert Shillingford alleged the $750 million credit union unfairly reordered his and other members’ debit transactions so that it paid off the largest transactions first, instead of those incurred first, creating additional overdrafts. The credit union denied the allegations and asked the court to dismiss the suit. A hearing in the case was scheduled for August 13.
Other credit union sued in recent weeks over their overdraft practices include: Alliant CU, Kern Schools FCU, SchoolsFirst FCU, Educational Employees CU and Star One CU, all in California, as well as America’s First FCU, Legacy Community FCU and Alabama Telco CU in Alabama.
Fourteen lenders have settled similar overdraft suits in recent months. Bank of America's $410 million settlement is the largest, followed by a $137.5 million settlement with Royal Bank of Scotland's Citizens Financial unit and a $110 million settlement with JP Morgan Chase. Citigroup, Wells Fargo and Capital One are among the larger banks that have not settled.