Legg v. W. Bank

• Citation: 873 N.W.2d 763
• Decision Date: 22 January 2016
• Docket Number: No. 14–0692.,14–0692.
• Parties: Darla LEGG and Jason T. Legg, on Behalf of Themselves and All Persons Similarly Situated, Appellees, v. WEST BANK, Appellant.
• Court: United States State Supreme Court of Iowa

873 N.W.2d 763

Darla LEGG and Jason T. Legg, on Behalf of Themselves and All Persons Similarly Situated, Appellees,

v.WEST BANK, Appellant.

No. 14–0692.

Supreme Court of Iowa.

Jan. 22, 2016.

Wade R. Hauser III, Jason M. Craig, Lindsay A. Vaught, and Michael J. Streit of Ahlers & Cooney, P.C., Des Moines, for appellant.

Ann E. Brown–Graff, Brad J. Brady, and Matthew L. Preston of Brady Preston Brown PC, Cedar Rapids, Joseph R. Gunderson of Gunderson, Sharp & Walke, Des Moines, and Thomas J. Duff of Duff Law Firm, P.L.C., Des Moines, for appellees.

Robert L. Hartwig, Johnston, for amicus curiae Iowa Bankers Association.

Emily Anderson of RSH Legal, Cedar Rapids, for amici curiae Iowa Association for Justice, Iowa Citizen Action Network, and National Consumer Law Center.

ZAGER, Justice.

In this interlocutory appeal, we are asked to determine whether the district court properly denied the bank's two motions for summary judgment. The plaintiffs filed a multiple-count consumer class action lawsuit against the bank challenging the one-time nonsufficient funds (NSF) fees it charged when the plaintiffs used their debit cards to create overdrafts in their checking account. For the reasons set forth below, we find that the district court erred in denying the motions for summary judgment except as to the good-faith claim involving the sequencing of the overdrafts. The decision of the district court is affirmed in part, reversed in part, and remanded for further proceedings.

I. Background Facts.

West Bank is a state-chartered Iowa bank. Plaintiffs Darla and Jason Legg are former customers of West Bank. They opened a joint checking account with West Bank on November 26, 2002. They closed their last account with West Bank in April 2013. The claims arising in this case, discussed in detail below, arise out of the payment of overdrafts and resulting NSF fees charged by West Bank.

West Bank issues bank cards to its customers. Customers use their bank cards in one of two ways: automatic teller machine withdrawals (ATM withdrawals) or point of sale purchases (POS purchases). Customers may also make electronic payments using their West Bank accounts that are processed in the same way as ATM withdrawals and POS purchases. All three of these transactions are classified as "bank card transactions." When customers are issued a bank card, they receive a "Deposit Account Agreement" (Agreement). The Agreement provides that West Bank "shall have an obligation to Depositor to exercise good faith and ordinary care in connection with each account."

When a customer of West Bank uses his or her bank card to begin a transaction, an electronic request is sent to Shazam. Shazam in turn sends an electronic request to Fiserv. Fiserv is a banking platform that processes payment requests for West Bank. Based on the customer balance available at the time the electronic request is made, Fiserv either denies or allows the transaction. The district court summarized what happens next as follows:

When a customer uses a Bank Card, once the transaction is approved at the point of sale the bank is required to pay the transaction when presented, even if there are not sufficient funds in the account by the time the transaction is posted to the account. Such posting typically occurs one to three days after the original transaction.

If West Bank is called upon to pay a Bank Card transaction when there are insufficient funds in the account, the bank advances sufficient money to cover the amount by which the account is short, and assesses a non-sufficient funds (NSF) fee. Those advances are automatically deducted from the customer account and repaid to the bank the next time a deposit sufficient to cover the advances is made to the account.¹

Debit card transactions are thus classified as "force-pay" transactions. Once they are authorized by Fiserv, West Bank is required to pay them, even if the customer's account has insufficient funds at the time the transaction is processed. These transactions may be presented for payment up to three days after the transaction is approved. The decision to pay the bank card transaction is made separately from the assessment of the NSF fee. After the NSF fees are applied to a customer's account, a reviewing West Bank employee has the discretion to waive the fees. The plaintiffs in this case had NSF fees waived on at least one occasion. The NSF fee West Bank charged customers was originally $27.00. It was later raised to $30.00. West Bank sets its NSF fee based on market studies of competitors.

West Bank does not post customer account balances in real time. Rather, transactions are posted in a batch at the end of the day. Prior to July 1, 2006, West Bank posted bank card transactions with the lowest amount for each day's debits posted first and the highest amount posted last (low-to-high sequencing). After July 1, 2006, West Bank reversed its posting sequencing and posted bank card transactions with the highest amount posted first and the lowest amount posted last (high-to-low sequencing). Beginning October 1, 2010, West Bank changed its posting order back to low-to-high sequencing.

After the 2006 change, a Miscellaneous Fees document was provided to customers that included two footnotes relating to sequencing. The first footnote stated, "[C]hecks written on your account will be paid in order daily with the largest check paid first and the smallest check paid last." The second footnote provided that insufficient fund charges applied to "items" posted to accounts and defined items to include checks, money transfers, ATM debits, debit card debits, and ACH debit withdrawals.

In 2009, footnote two on the Miscellaneous Fees document West Bank provided to customers was modified to state that overdrafts would be posted high to low, based on the amount of the transaction. It provided that

[c]hecks written on your account will be paid in order daily with the largest items paid first and the smallest items paid last. NSF fees apply to overdrafts created by check, in person withdrawal, ATM withdrawal or other electronic means.

West Bank discussed in an internal memo that the low-to-high sequencing had created a business expectation for customers. West Bank acknowledged that an Iowa Bankers Association Compliance Officer had discussed the proposed high-to-low sequencing order with an attorney and concluded in an internal memo that customers would need to be notified of the change. The summary judgment record supported an inference that West Bank made the change without adequately notifying its customers.

In August 2009, September 2009, and May 2010, the Leggs were charged NSF fees after West Bank instituted the new high-to-low sequencing. On August 31, the Leggs made two separate POS purchases in the amounts of $6.50 and $5.91, which resulted in overdrafts to their account. West Bank charged the Leggs $27.00 per POS purchase. On September 2, the Leggs made a $5.50 electronic payment which resulted in an overdraft to their account, and West Bank charged the Leggs a NSF fee of $27.00. The Leggs repaid these amounts on September 4. On September 17, the Leggs wrote a check for $560, which overdrew their account. The Leggs also made two POS purchases in the amounts of $10.89 and $9.00. West Bank charged the Leggs an NSF fee of $27.00 for each POS purchase, and the Leggs repaid both on September 18.² In all of these transactions, West Bank paid for the purchases.

On September 17, if the bank card transactions had been posted in the low-to-high sequence, the Leggs would have only been charged one NSF fee for one overdraft. On May 17, the Leggs were charged four NSF fees for bank card transactions. The Leggs would have only been charged two NSF fees if the transactions were posted low-to-high.

II. Course of Proceedings.

The Leggs filed this action as a proposed consumer class action on September 29, 2010. Their petition has been amended twice. The petition as amended includes six counts. Counts I, II, III, and IV arise under the Iowa Consumer Credit Code (ICCC). These claims are the "usury claims" and are based on the Leggs' allegation that West Bank's collection of NSF fees amounts to a finance charge in excess of twenty-one percent in violation of Iowa Code section 537.2201 (2009). Counts V and VI are the "sequencing claims," and they arise from West Bank's decision to process bank card transactions from high to low.

On April 8, 2013, West Bank filed its first motion for summary judgment. The motion for summary judgment asked the district court to dismiss all of the Leggs' usury claims except Count III, a claim arising under the Iowa Ongoing Criminal Conduct Act. See Iowa Code ch. 706A. The Leggs resisted West Bank's first motion for summary judgment. On August 14, West Bank filed a second motion for summary judgment, seeking to dismiss the Leggs' sequencing claims. The Leggs resisted the second motion for summary judgment. On September 5, West Bank filed a third motion for summary judgment, seeking to dismiss Count III. The Leggs resisted the third motion for summary judgment.³

Before the hearing on the motions for summary judgment, the Iowa Superintendent of Banking filed a "Superintendent Guidance" regarding the definition of finance charges under the ICCC. The guidance defines one-time NSF fees as "account fee[s] related to the maintenance of the customer's deposit account with the bank." Iowa Superintendent of Banking, Superintendent Guidance No. SG–2014–01, One–Time Overdraft Fees (Jan. 7, 2014), available at www.idob.state.ia.us/bank/docs/bulletinguidances.aspx. The Leggs assert this is a departure from the previous guidances and bulletins issued by the Superintendent.

The district court held a hearing on West Bank's three motions for summary judgment on January 9 and 10, 2014. In a ruling issued March 14, the district court denied West Bank's motions for summary judgment on the usury and sequencing claims, and granted its third motion for summary judgment. After ...