Eleventh Circuit Affirms That Banks Must Use Unambiguous Language When Disclosing Methods For Assessing Overdraft Fees

In Carol Tims v. LGE Community Credit Union, the Eleventh Circuit Court of Appeals held that a credit union’s account agreement with one of its customers was ambiguous about which account balance calculation the bank would use in assessing overdraft fees on the customer’s account, which exposed the credit union to potential liability under the Electronic Fund Transfer Act.

The matter came to the Court on appeal after the trial judge dismissed the consumer’s complaint.  The Court first addressed the history of overdraft fees, highlighting the rise of Electronic Fund Transfer (EFT) systems.  While convenient for customers, these EFT systems led to a substantial increase in overdraft fees, and corresponding consumer complaints.  In response, Congress implemented the Electronic Fund Transfer Act, which required customers to give affirmative consent to overdraft services through an opt-in notice.  As part of the Act, banks are required to give notice as to which method they will use when calculating the balance in a customer’s account:  either (1) the ledger balance method, which only considers settled transactions, or (2) the available balance method, which considers both settled transactions and authorized but not yet settled transactions, as well as deposits placed on hold that haven’t cleared.

In this case, LGE charged Tims two $30 overdraft fees.  Tims argued that LGE had agreed to use the ledger balance calculation method and that she had sufficient funds according to her ledger balance to cover each transaction.  LGE countered that the overdraft fees were appropriate because when Tims opened the account, she affirmatively agreed to use the available balance calculation method, and her available balance was insufficient to cover the transactions.  At the heart of the dispute were two agreements between Tims and LGE: an “Opt-In Agreement” and an “Account Agreement.”  The two parties disagreed as to the interpretation of the provisions in each of the agreements.

The court resolved the dispute by applying Georgia contract law, which requires the court to first determine if the language in question is ambiguous.  If the language is ambiguous, the court next attempts to resolve the ambiguity using Georgia principals of contract construction.  If the ambiguity can still not be resolved, the court ultimately refers the matter to a jury.

After analyzing the two agreements, the court held that the language in question was ambiguous.  For instance, the Opt-In Agreement said that “an overdraft occurs when you do not have enough money to cover a transaction, but we pay it anyway.”  The court reasoned that what LGE meant by “enough money” was ambiguous—was it enough money to cover only settled transactions or to cover authorized but not yet settled transactions as well?  Meanwhile, the Account Agreement stated that an overdraft occurs “if an item is presented without sufficient funds in your account to pay it” or “if funds are not available to pay all of the items.”  The court held that nothing in the Account Agreement explained how LGE determined that the funds were “sufficient” or what the term “available” meant in regards to unsettled debits.  Therefore, the agreements were ambiguous as to the overdraft protection.

After determining the agreements were ambiguous, the court tried to resolve the ambiguity by using Georgia principals of contract construction, but was unable to do so after finding that the agreements were capable of two reasonable constructions.  Ultimately, the court held that the matter should not have been dismissed and referred the case back to the trial court for further proceedings.

This opinion illustrates just how carefully a bank must obtain affirmative consent from their customers for overdraft services.  The Electronic Fund Transfer Act requires banks to describe the overdraft service in a “clear and understandable way.”  If they fail to do so, or if there is any ambiguity as to the terms of the overdraft service, there is potential exposure for damages under the Act.

Posted in: Eleventh Circuit
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