In re HSBC Bank
| Decision Date | 05 March 2014 |
| Docket Number | No. 13–md–2451(ADS)(AKT).,13–md–2451(ADS)(AKT). |
| Citation | 1 F.Supp.3d 34 |
| Parties | In re HSBC BANK, USA, N.A., DEBIT CARD OVERDRAFT FEE LITIGATION. |
| Court | U.S. District Court — Eastern District of New York |
OPINION TEXT STARTS HERE
Cuneo, Gilbert & LaDuca LLP, by Jonathan W. Cuneo, Esq., Sandra W. Cuneo, Esq., of Counsel, Washington, DC, Cotchett Pitre & McCarthy, LLP by Nancy L. Fineman, Esq., Aron K. Liang, Esq., of Counsel, Burlingame, CA, Rigrodsky & Long, P.A., by Seth Rigrodsky, Esq., Timothy J. MacFall, Esq., of Counsel, Garden City, NY, Cohen Law Group, P.C., by Brian S. Cohen, Esq., Clifford J. Bond, Esq., of Counsel, New York, NY, Co–Interim Class Counsel.
Stroock & Stroock & Lavan LLP, by Joseph E. Strauss, Esq., Julia B. Strickland, Esq., Wesley M. Griffith, Esq., Lisa M. Simonetti, Esq., of Counsel, New York, NY, for the Defendants.
This litigation encompasses allegations relating to the imposition of overdraft charges on certain debit card transactions by HSBC Bank USA, N.A. (“HSBC”). Specifically, the Plaintiffs allege that HSBC provides debit cards and/or ATM cards to its checking account customers. If there are insufficient funds for a given debit card transaction, it is considered an “overdraft.” HSBC may allow such transactions for a given debit card transaction to proceed, but the account is charged an “overdraft fee” of $35. The Plaintiffs allege that, in order to maximize revenue from overdraft fees, HSBC posts debits to customer accounts in a non-chronological order and/or “largest to smallest” order, causing customers to incur multiple overdraft fees that would not have been imposed had the transactions been posted chronologically or in a “smallest to largest” order. The Plaintiffs also allege that HSBC fails to clearly disclose the posting order to its customers; does not advise them that they may opt out of HSBC's overdraft program; and fails to post deposited funds to their accounts in a timely manner, resulting in additional overdraft fees.
Three putative class actions, Ofra Levin et al. v. HSBC Bank USA, N.A. et al., E.D.N.Y. 12–CV–5696 (ADS); Darek Jura v. HSBC Bank USA, N.A. et al., E.D.N.Y. 12–CV–6224 (ADS); and Hanes v. HSBC Bank USA, N.A., E.D.Va. 13–CV–00229 were filed against HSBC in federal court.
On June 5, 2013, the Judicial Panel on Multidistrict Litigation (“MDL”) centralized all three actions and assigned them to this Court. On July 22, 2013, this Court (1) consolidated the three actions for all pretrial purposes; (2) appointed co-interim class counsel; and (3) and directed co-interim class counsel to file a consolidated class action complaint within thirty days of the date of that order.
On September 30, 2013, the amended consolidated class action complaint was filed. On November 1, 2013, the Defendants moved, pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ.P.”) 12(b)(6), to dismiss the amended consolidated class action complaint, contending that the Plaintiffs' claims are preempted by the National Bank Act, 12 U.S.C. § 21 et seq., (the “NBA”) and, alternatively, fail to state a claim upon which relief can be granted. For the reasons set forth below, the motion is granted in part and denied in part.
A. Factual Background
Unless stated otherwise, the following facts are drawn from the amended consolidated class action complaint and construed in a light most favorable to the Plaintiffs.
HSBC provides debit cards to its checking account customers, who include individual consumers and small businesses. Customers can use their debit cards to make purchases or withdraw money from ATM machines. HSBC is instantaneously notified of debit card transactions. HSBC can immediately determine whether customers have sufficient funds in their accountsto cover the transactions. HSBC can either accept or decline the transactions at that time. If a customer does not have sufficient funds in his or her or its account to pay for a transaction, the transaction is considered an “overdraft.”
As part of its overdraft protection program, HSBC will, in its discretion, honor overdraft payments. Instead of declining overdrafts or informing customers that certain transactions will result in overdraft fees, HSBC routinely honors such overdrafts. If HSBC honors an overdraft, it charges the customer a $35 fee for each overdraft. At the time of the transaction, HSBC does not alert its customers that it will cause an overdraft.
The Plaintiffs allege that HSBC uses a computer program that is designed to manipulate customers' transaction records in order to maximizes overdraft fees. Generally, this means that HSBC posts transactions from the largest to the smallest amount. This practice is also called “high-to-low” posting. A transaction is “posted” when HSBC either debits an expenditure from the customer's account or credits a deposit to a customer's account. HSBC does not debit funds from a customer's account at the moment a transaction is made. Instead, HSBC takes several days' worth of transactions and orders them from the highest to the lowest dollar amount before posting them to the customer's account. If the account is overdrawn after all of these transactions are posted, then the customer incurs overdraft fees.
HSBC charges customers the same $35 fee for each overdraft regardless of the amount of the transaction. This means that, using high-to-low posting, customers' funds in an account are depleted as quickly as possible, which can lead to overdraft fees. Customers cannot easily avoid these overdraft fees even if they closely track their income and spending.
Prior to July 1, 2010, HSBC automatically enrolled consumers in its overdraft protection program without giving them the opportunity to opt out of the program. The Plaintiffs allege that HSBC forced customers to participate in its overdraft program and adopted high-to-low posting for the sole purpose of recovering as many overdraft fees as possible from its customers.
The terms of HSBC's checking accounts are contained in a standard account holder agreement called the “Rules for Deposit Accounts” (the “Rules”). HSBC distributes the Rules to all customers who open a new HSBC checking account. The Rules explain that:
If you write a check for more money than you have in your account or against unavailable funds, the Bank may either pay the check, in which case you must pay the Bank back promptly, or return it. The Bank may charge you a per item fee as shown on the Terms and Charges Disclosure if you write a withdrawal slip or check, make a withdrawal from an automated teller machine or other electronic funds facility, (including a point of sale terminal) against insufficient funds or against funds unavailable for withdrawal. You[r] account may be debited on the day an item is presented, or at such earlier time as notification is received by the Bank by electronic or other means, that an item is drawn on your account has been deposited for collection in another financial institution. You understand that the Bank reserves the right to pay items into overdraft, [and] to impose overdraft fees ...
(Amended Compl., Exs. A, B at 3). Under the heading “Payment of Your Items for Your Account,” HSBC states “the Bank generally pays the largest debit items drawn on a depositor's account first.” HSBC provides no other information or any explanation of this policy.
B. The Individual Plaintiffs1. Jura
The Plaintiff Darek Jura was, at all relevant times, a checking account customer of HSBC and a resident of New York State. He opened his checking account with HSBC in the late 1990s. During the relevant time period, Jura was issued a check card by HSBC and was allegedly charged overdraft fees when there were sufficient funds in his account to cover the transaction at issue. For example, on August 7, 2008, Jura was charged with four overdraft charges for a total of $140. If HSBC had not allegedly manipulated and reordered Jura's transactions from highest to lowest, Jura allegedly would have incurred only two overdraft fees.
2. Hanes
Hanes was, at all relevant times, a checking account customer of HSBC and a resident of New York State. She alleges that, on May 25, 2010, she was assessed four $35 overdraft fees, totaling $140, based on five debit card transactions that were posted to her account on May 24, 2010.
C. Procedural History
There has been a number of lawsuits brought with regard to HSBC, both in state and federal court, in an almost confusing fashion. Of relevance here, on November 19, 2012, Ofra Levin, 33 Seminary LLC, Binghouse Inc., and Rock View Ventures LLC (the former Levin Plaintiffs) filed the first class action against HSBC in this Court. On December 21, 2012, the Levin Plaintiffs filed their first amended complaint.
Meanwhile, on December 18, 2012, the Plaintiff Darek Jura filed a substantially similar class action against HSBC in this Court. On February 20, 2013, the Plaintiff Leah Hanes filed a substantially similar class action against HSBC in the United States District Court for the Eastern District of Virginia.
On June 5, 2013, the MDL centralized all three actions before this Court. On July 22, 2013, this Court (1) consolidated the three actions for all pretrial purposes; (2) appointed co-interim class counsel; and (3) directed co-interim class counsel to file a consolidated class action complaint within thirty days of the date of that order.
On September 30, 2013, the amended consolidated class action complaint was filed. Based on the above-mentioned allegations, the Plaintiffs assert numerous claims against HSBC for themselves and for a proposed nationwide class and 13 state subclasses.
On behalf of a proposed national class, the Plaintiffs raise claims for breach of contract; breach of the implied covenant of good faith and fair dealing; conversion; and unjust enrichment.
For the 13 state subclasses, the Plaintiffs raise these claims...
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