Court Revives Claim Challenging Use of “Available Balance” Rather than “Ledger Balance” to Assess Overdraft Fees, Finding Contracts Ambiguous

Carol Tims filed a putative class action against LGE Community Credit Union, claiming that the bank breached its contract with her, and violated the federal Electronic Fund Transfer Act (“EFTA”), when it charged overdraft fees based on Tims’s “available balance”—which took into account pending debits—rather than her “ledger balance,” which did not.  The district court dismissed Tims’s complaint, holding that the parties’ agreements—an “Opt-In Agreement” and an “Account Agreement”—unambiguously permitted the bank to assess overdraft fees based on the account’s available balance, even if it were lower than the account’s ledger balance.  A panel of the Eleventh Circuit disagreed, and reversed the dismissal, Tims v. LGE Community Credit Union, 2019 WL 4019847 (11th Cir. Aug. 27, 2019).

In a decision written by Judge Jill Pryor and joined by Judge Martin and Judge Julie Carnes, the Eleventh Circuit held that the language of the two agreements was ambiguous as to which balance—“ledger” or “available”—would be used to assess overdraft fees.  The Opt-In Agreement said that “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.”  The Account Agreement referred to situations in which “an item is presented without sufficient funds in your account to pay it” or when “funds are not available to pay” items presented for payment.  All of this was ambiguous, the court held, as to whether the account’s “available balance” or “ledger balance” would be determinative.  And the fact that the Account Agreement explained that some deposits might not be immediately available, the court held, “did not explain that a pending debit would render funds unavailable to consumers.”

Having found the agreements ambiguous, the court looked to Georgia’s canons of contract construction.  Here, the bank argued that the use of the word “available” in close proximity to the word “sufficient” indicated that “available balance” would determine overdraft status.  The court disagreed:  “There is no rule that words in close proximity should be construed as related to one other without considering word order and context.”  Tims argued that the agreements were contracts of adhesion, and should be construed against the drafter under the canon of contra proferentem.  The court observed (in a footnote) that Tims had failed to preserve those arguments for appeal because she raised them in the district court only in a footnote.  So the contracts remained ambiguous, the court held, even after consideration of Georgia’s canons of contract construction.  The court therefore reversed the district court’s dismissal of Tims’s breach of contract claim and her derivative claim for breach of the duty of good faith and fair dealing.

The Eleventh Circuit also reversed the dismissal of Tims’s claim under the EFTA.  Regulation E, implementing the statute, requires that consumers be given “a notice . . . describing the institution’s overdraft service,” and provides a model form, Form A-9, as a safe harbor.  LGE argued that it could not be found to have violated the regulation because its Opt-In Agreement followed Form A-9.  The Eleventh Circuit held that LGE’s use of the model form precluded any claim for “failure to make disclosure in proper form,” but that use of the form “does not shield [LGE] 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.”

Posted by Valerie Sanders.

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