Fludd v. S. State Bank

Citation566 F.Supp.3d 471
Decision Date06 October 2021
Docket NumberCivil Action No. 2:20-cv-1959-BHH
Parties Latoya Lashay FLUDD and Wanda Sue Butcher, individually, an on behalf of all other similarly situated, Plaintiffs, v. SOUTH STATE BANK, and Does 1-100, Defendant.
CourtUnited States District Courts. 4th Circuit. United States District Court of South Carolina

Emily Jo Kirk, Pro Hac Vice, McCune Wright Arevalo, LLP, Edwardsville, IL, Mark Charles Tanenbaum, Mark C. Tanenbaum PA, Mount Pleasant, SC, Michele M. Vercoski, Pro Hac Vice, Richard D. McCune, McCune Wright Arevalo LLP, Ontario, CA, Richard A. Harpootlian, Richard A. Harpootlian PA, Columbia, SC, for Plaintiffs.

Brian A. Kahn, Pro Hac Vice, Thomas Richmond McPherson, III, Zachary L. McCamey, Pro Hac Vice, McGuireWoods LLP, Charlotte, NC, for Defendant South State Bank.

Opinion and Order

Bruce Howe Hendricks, United States District Judge

This matter is before the Court on the Defendant South State Bank's1 motion to dismiss Plaintiffs Latoya Fludd and Wanda Butcher's first amended class action complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF No. 38.) For the reasons set forth in this order, Defendant's motion is denied.

BACKGROUND

South State Bank ("South State" or "the Bank") is a large bank with locations and customers in over 100 cities located in four states, managing more than $15 billion in assets. (Am. Compl. ¶ 19, ECF No. 35.) South State offers its customers various financial services, including checking accounts where account holders can deposit and withdraw their money. (Id. ¶ 20.) When processing debit transactions, South State assesses overdraft fees, incurred when the Bank pays an item into overdraft, as well as NSF fees, incurred when an item is returned due to an overdrawn account. (Id. ¶ 21.) Overdraft and NSF fees constitute a significant source of revenue for financial institutions like South State. (Id. ¶ 26.) In 2019, South State reported collecting more than $30 million in consumer overdraft-related service charges on accounts intended primarily for individuals with personal, household, or family use. (Id. ¶ 21.)

To determine whether an overdraft has occurred, South State uses an internal bookkeeping calculation called "available balance" instead of an account's actual balance.2 (Id. ¶¶ 5, 31–34.) The actual balance includes all the money in an account at a point in time; it is an account's official balance, and the balance customers receive in monthly statements. (Id. ¶ 32.) The available balance starts with the actual balance, but subtracts any holds placed on the funds in the account that may affect the amount of money in the account in the future. (Id. ¶ 47.) Plaintiffs Latoya Fludd ("Fludd") and Wanda Butcher ("Butcher") (collectively, "Plaintiffs"), allege that South State's use of the available balance bookkeeping method routinely leads to an overdraft fee even though sufficient money remains in the account after a transaction is paid. (Id. ¶¶ 35, 47.) Plaintiffs provide the following hypothetical to demonstrate this circumstance:

• An individual has $1,000 in her account, with two bills, rent and car, totaling $1,000 earmarked for payment at a later date.
• In the interim, a $40 water bill is due and paid immediately, leaving $960 in the account.
• Under actual balance accounting, the individual can pay the $40 bill and replenish the account before the two bills totaling $1,000 are paid without being assessed an overdraft fee.
• Under available balance accounting, the individual would be assessed an overdraft fee for the $40 bill because the individual's $1,000 was already held for future bill payments, even though the $40 was in the account and the Bank did not need to advance its own money to cover the transaction.

(Id. ¶¶ 48–50.)

Regulators, including the Consumer Financial Protection Bureau ("CFPB") and the Federal Deposit Insurance Corporation ("FDIC"), have flagged financial institutions’ use of the available balance method to assess overdraft fees as "potentially unfair and deceptive" when "not sufficiently disclosed" to consumers. (Id. ¶ 51.) Plaintiffs allege, based on publicly-available empirical reports, that the financial impact of excessive overdraft fee practice disproportionately falls on "the most vulnerable Americans," with younger, lower-income, and non-white account holders being most likely to be assessed overdraft fees. (Id. ¶ 30.) In 2009 the Federal Reserve Board amended Regulation E to require institutions to obtain affirmative consent ("opt-in") from account holders before enrolling them in overdraft programs that would assess fees on ATM and non-recurring "point of sale" debit card transactions. (Id. ¶ 41.) Regulation E mandates that the opt-in agreement be a stand-alone document, not combined with other forms, disclosures, or contracts. (Id. ¶ 43); 12 C.F.R. § 1005.17(b)(1)(i). Moreover, the institution must disclose its overdraft policies in the opt-in agreement in a "clear and readily understandable manner." (Am. Compl. ¶ 43); 12 C.F.R. § 1005.4(a)(1).

In South State's case, its Opt-in Agreement indicates that an overdraft "occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway." (Id. ¶¶ 53–55.) The relevant excerpt from the Opt-in Agreement appears as follows:

                Regulation E Overdraft Authorization Form
                  An overdraft (i.e. non-sufficient funds) occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway. We can
                  cover your overdrafts (i.e. non-sufficient funds) in two different ways
                          1. We have standard overdraft practices that come with your account called Automatic Overdraft Privilege (ACP) that can change a
                             Non-sufficient Funds/Overdraft Fee of $36 per item
                

(ECF No. 1-3.) Plaintiffs allege that this language conflicts with, or is confusingly ambiguous regarding, the use of the available balance accounting method to assess overdraft fees. (See Am. Compl. ¶¶ 53–55.)

On May 4, 2020, South State assessed Ms. Butcher a $36 overdraft fee based on a $0.99 non-recurring debit card transaction. (Id. ¶ 108.) She alleges this charge violated Regulation E because South State did not use an Opt-in Agreement that accurately described its overdraft practices, and thereby failed to obtain her informed consent before including her in the overdraft program. (Id. ¶¶ 56, 108.)

In Ms. Fludd's case, South State entered into a uniform written contract with her entitled "Personal Deposit Account Agreement" ("PDAA"). (ECF No. 1-1.)3 In a section entitled "Insufficient Funds – Overdrafts and Returned Items," the PDAA states: "We may pay all, some, or none of your overdrawn items, without notice to you. If we do not authorize and pay an item , then we will decline or return the transaction unpaid. In either case, the insufficient funds fee will still apply." (Id. at 13 (emphasis added).) Thus, once South State determines that an account balance is insufficient to cover a transaction, the PDAA permits the Bank to charge an overdraft or NSF fee on the "item." (Am. Compl. ¶ 90.) The PDAA does not specifically address whether or not multiple fees may result from the same transaction, originally declined for insufficient funds, but later re-presented by the merchant. (See ECF No. 1-1.)

South State also provides consumers with a Fee Schedule. (ECF No. 1-2.) The Fee Schedule itemizes a "NSF Returned Item Fee" of "$36.00." (Id. ) The Fee Schedule is silent as to whether multiple NSF fees may result from a merchant's re-presentment of a previously returned transaction. (See id. ; see also Am. Compl. ¶ 90.) The relevant excerpt from the Fee Schedule appears as follows:

  Non-sufficient Funds/Overdraft Charges (Checking and Savings)
                  Overdraft Paid Item Fee                                                                               $36.00
                  NSF Returned Item Fee                                                                                 $36.00
                  (Checks paid in numerical order on day received. An overdraft item may be created by check/draft
                in-person withdrawal, ACH item or other electronic means.)
                

(ECF No. 1-2 at 1.) The Opt-in Agreement also provides that South State charges a "Non-sufficient Funds/Overdraft Fee of $36.00 per item." (ECF No. 1-3; see also Am. Compl. ¶ 95.) The relevant excerpt from the Opt-in Agreement appears as follows:

                  1. We have standard overdraft practices that come with your account called Automatic Overdraft Privilege (ACP) that can charge a
                     Non-sufficient Funds/Overdraft Fee of $36 per item
                

(ECF No. 1-3.)

Plaintiffs allege that South State charges the contractual NSF fee of $36 each time a merchant presents an existing item for processing, even though the account holder never resubmits the original item for payment. (Am. Compl. ¶ 95.) They further allege that such "repeat fees on a single returned transaction" are fundamentally unfair, not authorized by South State's contracts with customers, and not properly disclosed in those contracts. (Id. ¶¶ 37–38.) Plaintiffs cite the following examples of allegedly improper "repeat fees." On April 1, 2019, Ms. Fludd made two Transamerica payments in the amount of $45.15 and $112.75, after which South State returned them unpaid, charging her $72 in NSF Returned Item Fees ($36 per item). (Id. ¶ 106.) These fees are not in dispute. However, on April 10, Transamerica re-presented those same two transactions for payment and South State again charged Fludd $72 in fees for the two items. (Id. ) This pattern repeated in July 2019. On July 1, South State charged $36 for a $45.15 returned item presented by Transamerica (Trans. No. 3262) and $36 for a $112.75 returned item presented by Transamerica (Trans. No. 1701). (Id. ¶ 105.) Again, the legitimacy of this first round of fees is not in dispute. Ms. Fludd does, however, dispute the legitimacy of $72 in NSF fees that South State imposed on July 11, when Transamerica re-presented the same transactions for...

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