In Tims v. Lge Cmty. Credit Union, No. 17-14968, 2019 U.S. App. LEXIS 25731, at *2-8 (11th Cir. Aug. 27, 2019), the Court of Appeals for the Eleventh Circuit found an EFTA violation based on an ambiguous opt-in notice and the Credit Union’s practice of applying an “available balance” method rather than a “ledger” method. The facts were as follows:
“Overdraft” is a banking term describing a deficit in a bank account caused by drawing more money than the account holds. Before the development of electronic fund transfer (EFT) systems, banks generally provided overdraft coverage for check transactions only. See Electronic Fund Transfers, 74 Fed. Reg. 59,033, 59,033 (Nov. 17, 2009). When a bank customer overdrew her account by writing a check in an amount that exceeded the amount of funds in the account, her financial institution applied its discretion in deciding whether to honor the customer’s draft, in effect extending a small line of credit to its customer and imposing a small fee for the convenience. Id. Online banking transformed how financial institutions handled overdrafts and overdraft fees. New EFT systems provided customers with more ways to make payments from their accounts, including automatic teller machine (ATM) withdrawals, debit card transactions, online purchases, and transfers to other accounts. Id. Most financial institutions chose to extend their overdraft coverage to all EFT transactions. Some further decided to cover automatically all overdrafts their customers might generate from their EFTs. Id. These changes had the benefit to financial institutions of “reduc[ing] cost[s]” from manually reviewing individual transactions and furthering “consistent treatment of consumers.” Id. at 59,033-34. But they came at a significant and sometimes unexpected cost to consumers: financial institutions generally assessed a flat fee each time an overdraft occurred, sometimes charging additional fees-for each day an account remained overdrawn, for example, or incrementally higher fees as the number of overdrafts increased. Id. at 59,033. Congress enacted EFTA with the aim of outlining the rights, responsibilities, and obligations of individuals and institutions using EFT systems. Id. In EFTA‘s implementing regulations (Regulation E, 12 C.F.R. pt. 1005), Congress set out to “assist consumers in understanding how overdraft services provided by their institutions operate and to ensure that consumers have the opportunity to limit the overdraft costs associated with ATM and one-time debit card transactions where such services do not meet their needs.” Id. at 59,035. Doing away with the practice of automatic enrollment of consumers in overdraft coverage, Regulation E required financial institutions to secure consumers’ “affirmative consent” to overdraft services through an opt-in notice. Id. at 59,036. The opt-in notice was to be “segregated from all other information describing the institution’s overdraft service,” 12 C.F.R. § 1005.17(b)(1)(i), and be “substantially similar” to a model form (Model Form A-9) provided by the Federal Reserve, id. § 1005.17(d). “But the opt-in requirement and model form have not dispelled all the controversy and confusion surrounding overdraft fees.” Chambers v. NASA Fed.Credit Union, 222 F. Supp. 3d 1, 6 (D.D.C. 2016). Model Form A-9 does not address which account balance calculation method a financial institution should use to [*5] determine whether a transaction results in an overdraft. See 12 C.F.R. pt. 1005, app. A. Without any such provision in the model form, “some financial institutions have failed to disclose the balance calculation method that they use to determine whether a transaction results in an overdraft.” Chambers, 222 F. Supp. 3d at 6. In determining whether a customer has made a withdrawal or incurred a debit that exceeds the balance in her account-an overdraft-financial institutions typically use one of two methods of calculating the balance in a customer’s account: the “ledger” balance method or the “available” balance method. The ledger balance method considers only settled transactions; the available balance method considers both settled transactions and authorized but not yet settled transactions, as well as deposits placed on hold that have not yet cleared. Consumer Fin. Prot. Bureau, Supervisory Highlights 8 (Winter 2015), available at https://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf (last visited May 24, 2019). These two competing methods of calculating the consumer’s balance and charging overdraft fees based on that balance lie at the heart of this case. . . . LGE allegedly charged Tims overdraft fees of $30.00 each on two occasions. Tims’s complaint alleged that at the time LGE assessed the overdraft fees, her ledger balance was sufficient to cover each transaction. She alleged that LGE agreed to use the ledger balance calculation method in assessing overdraft fees, and so LGE’s use of the available balance calculation method breached her agreements with LGE. LGE argues that its agreements with Tims unambiguously provided that LGE would use the available balance calculation method in imposing overdraft fees. LGE thus asserts that it did not breach its agreements by imposing fees based on Tims’s available balance. There were two agreements between Tims and LGE: the “Opt-In Agreement” and the “Account Agreement.” LGE asked consumers to sign the Opt-In Agreement to obtain their consent to LGE’s overdraft policies. The Opt-In Agreement said little about which balance calculation method LGE employs, stating only that “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.” Doc. 29 at 44. LGE adopted the Opt-In Agreement to comply with Regulation E, 12 C.F.R. § 1005.17. Again, Regulation E requires financial institutions to secure a consumer’s “affirmative consent” before charging overdraft fees and stipulates that consent can be secured through use of an opt-in form “substantially similar” to Model Form A-9. Id. § 1005.17(b)(1)(iii), (d). LGE’s Opt-In Agreement is nearly an exact copy of Model Form A-9. Compare id. pt. 1005, app. A, with Doc. 29 at 44. The second agreement between Tims and LGE, the Account Agreement, contained a “Payment Order” provision explaining that in processing items drawn on a consumer’s account, LGE’s “policy is to pay [the items] as we receive them.” Doc. 29 at 31. The Account Agreement went on to say, “[i]f 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” presented for payment, LGE “may, at [its] discretion, pay” the item or items, creating an overdraft for which LGE will charge a fee. Id. at 32. A separate provision in the Account Agreement, the “Funds Availability Disclosure,” addressed the conditions under which funds were available for consumers’ use. Id. at 37. In this provision, LGE explained that its general policy was “to make funds from your deposits available to you on the same business day that [LGE] receive[s] your deposit,” but certain deposits would not be “available” to consumers until the second business day at the earliest. Id.
The Court of Appeals found an EFTA violation.
Tims alleges, and we think it plausible, that LGE violated EFTA Regulation E. Under EFTA, Congress charged the Federal Reserve Board-and, later, the Consumer Financial Protection Bureau (CFPB)-with promulgating regulations to Regulation E is part of the CFPB’s implementation of this requirement. Regulation E requires financial institutions to give consumers a “notice . . .describing the institution’s overdraft service.” 12 C.F.R. § 1005.17(b)(1)(i). The notice must be “substantially similar to Model Form A-9” and describe the “financial institution’s overdraft service” in a “clear and readily understandable” way. Id. § 1005.17(d)(1), 1005.4(a)(1). See also 15 U.S.C. § 1693c (requiring financial institutions to make disclosures “in accordance with the regulations of the” CFPB “in readily understandable language”). Before financial institutions may charge overdraft fees, they must give consumers “a reasonable opportunity . . .to affirmatively consent, or opt in, to the service.” 12 C.F.R. § 1005.17(b)(1)(ii). Congress created a private right of action for consumers against financial institutions that fail to provide proper notice describing their overdraft service. See 15 U.S.C. § 1693m. Congress further directed the CFPB to draft boilerplate language to help financial institutions “compl[y] with the disclosure requirements” As we have explained, the Opt-In Agreement LGE gave Tims is ambiguous because it could describe either the available or the ledger balance calculation method for unsettled debits. As a result, it is plausible that the notice does not describe the overdraft service in a “clear and readily understandable” way. 12 C.F.R. § 1005.4(a)(1). It is also plausible that Tims had no reasonable opportunity to affirmatively consent to LGE’s overdraft services. Id. § 1005.17(b)(1)(ii). Affirmative consent requires “plain and clear consent . . . before certain acts or events, such as changes in policies that could impair an individual’s rights or interests.” Affirmative-Consent Requirement, Black’s Law Dictionary (11th ed. 2019). A notice that does not adequately convey the circumstances in which a financial institution will charge overdraft fees may not provide a consumer all the information she needs to give plain and clear consent. Here, Tims plausibly did not have a reasonable opportunity to affirmatively consent because the notice gave her no way to know whether LGE would use the available balance or the ledger balance method to charge her overdraft fees.
The Court of Appeals found that the Credit Union was not entitled to EFTA’s safe harbor.
But that is not the end of the matter. Congress provided a safe harbor from EFTA liability for “any failure to make disclosure in proper form if a financial institution utilized an appropriate model clause issued by the” CFPB. 15 U.S.C. § 1693m(d)(2). 12 The CFPB interprets the safe harbor to preclude liability “for failure to make disclosures in proper form” provided the institution “uses [the model form’s] clauses accurately to reflect its services.” 12 C.F.R. pt. 1005, app. A (Supp. I). In its notice defining the term “overdraft,” LGE copied verbatim the definition of that term provided in Model Form A-9: “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.” LGE seeks refuge in the safe harbor because, it argues, it used an appropriate model form to describe its overdraft service. We disagree that LGE is protected from liability by the safe harbor. LGE emphasizes that its form is accurate, and that may be so. After all, we have concluded it could correctly refer to either the ledger balance or the available balance method. But that does not conclude the inquiry. The relevant question is whether the claim Tims asserts is one for LGE’s “failure to make disclosure in proper form.” The answer must be no. The statute’s text, which is where all statutory interpretation must begin, makes that much plain. See BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004). “Form” has many meanings, but it is best read here to refer to “[p]rocedure as determined or governed by custom or regulation,” as distinct from content or substance. . . .Thus, making disclosure in proper form means making the disclosure according to proper procedures. The safe-harbor provision insulates financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy. But it does not shield them for claims based on their failure to make adequate disclosures. A financial institution thus strays beyond the safe harbor when communications within its overdraft disclosure inadequately inform the consumer of the overdraft policy that the institution actually follows. See Berenson v. Nat’l Fin. Servs., LLC, 403 F. Supp. 2d 133, 151 (D. Mass. 2005) (holding the safe harbor “insulates an institution only from a challenge as to the form-not the adequacy-of the disclosure”) Regulation E sets out procedures for how financial institutions must present their disclosures. To comply with the regulation, financial institutions must make the disclosure “in writing, or if the consumer agrees, electronically” and must further “segregate” the notice “from all other information.” 12 C.F.R. § 1005.17(b)(1)(i). The format of the notice required by § 1005.17(b)(1)(i) must be “substantially similar to Model Form A-9.” Id. § 1005.17(d). Financial institutions must also “[p]rovide the consumer with confirmation of the consumer’s consent in writing, or if the consumer agrees, electronically.” Id. § 1005.17(b)(1)(iv). These provisions set out the “proper form” for presenting a disclosure. Tims does not allege LGE failed to do any of that. Instead, she challenges the substance of the Opt-In Agreement, which she says failed to give her enough information to give affirmative consent to LGE’s overdraft service. As its text makes clear, the safe-harbor provision LGE invokes does not preclude liability when, as in this case, the content of the Regulation E disclosure is at issue. Because Tims challenges only LGE’s failure to make an adequate disclosure, and not its failure to make the disclosure “in proper form,” LGE cannot seek refuge under the safe harbor provision. This is so whether or not the form accurately describes the overdraft service. In this, our ruling is consistent with the great weight of district court authority to have considered the matter. See Salls v. Dig.Fed. Credit Union, 349 F. Supp. 3d 81, 91 (D. Mass 2018) (collecting cases). Tims’s complaint challenged the substance of LGE’s Opt-In Agreement. Because the safe harbor does not protect financial institutions from challenges to the substance of Opt-In Agreements, Tims’s EFTA claim survives a motion to dismiss, and the district court erred in granting the motion.