LOS ANGELES – Xceed Financial FCU asked a federal court this morning to compel a member suing it over its overdraft practices to submit to mandatory arbitration instead, as required under its standard membership agreement.

Xceed, the first of nine credit unions sued over overdraft practices, made the request after a federal court last week ordered a customer of BB&T to submit his overdraft dispute to mandatory arbitration.

The distinction between arbitration and litigation could have an enormous impact on the growing number of overdraft suits because it means the federal courts will not certify purported class actions and that plaintiffs must prove their cases individually.

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.

The credit union suits are among a growing number of consumer class actions claiming unfair practices and fraud in the alleged reordering of debit transactions, with credit unions and banks allegedly paying off debits from largest to smallest, instead of by date, in order to create more overdrafts and the fees that come with them.

In a motion filed this morning in U.S. District Court for the Central District of California, the $750 million credit union states that arbitration in its suit is mandatory under the Federal Arbitration Act and specifically under the terms of a 2011 membership agreement the plaintiff signed with the credit union. That 44-page agreement under the Truth In Savings Act includes a “well-disclosed, neutral provision requiring arbitration of “any and all disagreements” between the parties,” according to the credit union.

On page 8 of the agreement it states: “I understand and agree that any and all disagreements between you and me, regardless of when they arose, will be resolved by an arbitration proceeding before a neutral arbitrator…”

Xceed Financial also filed a separate motion today to dismiss the suit, claiming the member did not prove that it engages in reordering and that any overdraft charged to the member was caused by his own actions.

A hearing is scheduled on the separate motions for August 13.

 

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