In Ramirez v. Baxter Credit Union, 2017 WL 118859, at *2 (N.D.Cal., 2017), Judge Illston dismissed an EFTA class action. The facts were as follows:
This dispute, and others like it, hinge on how a financial institution calculates accountholders’ account balances when determining whether an overdraft has occurred, and whether the institution adequately informs accountholders of these overdraft practices. A checking account has two balances: a “ledger” balance (or “actual” balance), which represents the official account balance at any given time, and an “available” balance, which represents the funds immediately available to the accountholder. Seeid. ¶ 24. Sometimes these two balances are the same, but often they are not. For instance, when an accountholder deposits a check, banks generally make only a portion of that check available immediately, with the remainder held for a certain time period while the funds clear. See id. The account’s ledger balance might reflect the full amount of the deposit right away, but the available balance would include only a portion of that check deposit until the check clears. Or, as another example, when an accountholder uses his or her debit card to make a purchase in a store or online, the merchant might place a “credit hold” on those funds, with the actual debit against the account occurring one or two days later when the transaction settles. See id. The account’s ledger balance would not reflect such a transaction until it settles, but the available balance would reflect the transaction immediately. Ramirez alleges that, based on the opt-in language in her Membership Enrollment Form, BCU promised to use a member’s ledger balance to determine when an overdraft occurs, when in actuality, the credit union uses a member’s available balance. Id. ¶¶ 23-24. As a result, an accountholder may inadvertently overdraft his or her account by relying on the ledger balance. Ramirez alleges that by misleading its members in this manner, BCU has violated the EFTA provisions governing overdrafts and breached the overdraft opt-in contract. Defendant moves to dismiss the complaint in its entirety for failure to state a claim.
Judge Illston allowe the EFTA claim to proceed.
Plaintiff alleges that BCU violated Regulation E of the EFTA, 12 C.F.R. § 1005.17, which governs how financial institutions obtain an accountholder’s consent to charge overdraft fees on ATM and nonrecurring debit card transactions. Compl. ¶¶ 78-79. Plaintiff alleges that BCU’s opt-in form insufficiently describes its overdraft policy by merely stating that “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.” See id. (emphasis in original). In plaintiff’s view, the form describes overdrafts assessed based on an accountholder’s ledger balance, rather than his or her available balance. Id. Defendant counters that BCU’s opt-in form fully complies with Regulation E’s requirements, using language virtually identical to the model form contained in Regulation E. Mot. at 15:24-27. In order to assess overdraft charges on ATM or nonrecurring debit card transactions, Regulation E requires financial institutions to, among other things: (1) “[p]rovide[ ] the consumer with a notice in writing, or if the consumer agrees, electronically, segregated from all other information, describing the institution’s overdraft service”; (2) “[p]rovide[ ] a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for ATM and one-time debit card transactions”; and (3) “[o]btain[ ] the consumer’s affirmative consent, or opt-in, to the institution’s payment of ATM or one-time debit card transactions[.]” 12 C.F.R. § 1005.17(b). If a financial institution does not obtain affirmative consent that meets all the requirements of Regulation E’s opt-in rule, then it is not permitted to charge overdraft fees on ATM and one-time debit card transactions. Id. Regulation E further provides guidance for the content and form of the mandatory opt-in notice. See 12 C.F.R. § 1005.17(d). Opt-in notices “shall be substantially similar to” the model form provided in Appendix A to Regulation E. Id.; see also id., Ch. X, Pt. 1005, App’x A. . . . Plaintiff contends that BCU violated Regulation E by failing to properly describe its overdraft service. See id. § 1005.17(d)(1); Compl. ¶¶ 78-79. BCU argues that it fully complied with Regulation E by using the model form almost verbatim, and that it is therefore protected by the EFTA safe harbor provision, 15 U.S.C. § 1693m(d)(2). Mot. at 15. BCU further argues that when construing the opt-in form together with the Deposit Account Agreement, BCU adequately described its overdraft service. Id. at 16. First, defendant may not rely on the safe harbor provision under 15 U.S.C. § 1693m(d)(2). Section 1693m provides a safe harbor for “any failure to make disclosure in proper form if a financial institution utilized an appropriate model clause issued by the [Consumer Financial Protection] Bureau or the [Federal Reserve] Board[.]” 15 U.S.C. § 1693m(d)(2). However, plaintiff does not allege that BCU failed to disclose its Courtesy Payment service in the “proper form”; plaintiff alleges that BCU’s opt-in form does not contain the proper content. See Pinkston-Poling v. Advia Credit Union, No. 15-cv-1208-GJQ, 2016 WL 7473309, at *3 (W.D. Mich. Dec. 29, 2016) (“[B]ecause [plaintiff] complains about the accuracy of the Opt-in Agreement’s description of [defendant’s] overdraft service, i.e., its content or substance, and not the form of the notice, the safe harbor provision does not bar [plaintiff’s] EFTA claim.”); see also Berenson v. Nat’l Fin. Servs., LLC, 403 F. Supp. 2d 133, 151 (D. Mass. 2005) (“[T]he statutory language [of the safe harbor provision] suggests that this defense insulates an institution from a challenge as to the form—not the adequacy—of the disclosure.”). Second, in this instance, the Court will not construe the opt-in form in conjunction with the Deposit Account Agreement. Regulation E specifically governs the requirements of the opt-in form on its own, and plaintiff has properly alleged that BCU’s opt-in form is facially deficient. Plaintiff has stated a claim under the EFTA, 15 U.S.C. § 1693m, because she properly alleges that BCU’s opt-in form does not adequately “descri[be] … the financial institution’s overdraft service[.]” 12 C.F.R. § 1005.17(b)(1)(i), (d)(1). An applicant might not know from reading the opt-in form that BCU assesses overdrafts based on an account’s available balance, as opposed to its ledger balance. Accordingly, the Court DENIES defendant’s motion to dismiss plaintiff’s EFTA claim.