Class action attorneys are in the process of investigating the overdraft fee practices at several different financial institutions, such as ESL Federal Credit Union, evaluating them for compliance with consumer protection laws.

Overdraft protection is a service some banks and credit unions offer to cover checking account transactions that would otherwise overdraw the account.

Customers with overdraft protection get to avoid the fees associated with NSF transactions, but they may still be hit with comparable transaction fees associated with their overdraft protection plan.

Some financial institutions have been accused of manipulating the way they charge overdraft fees in a way that maximizes the revenues they generate.

For example, in a practice known as “reordering,” some institutions have changed the order in which they process transactions in a way that depletes the account funds sooner, causing more transactions to qualify for an overdraft fee.

Federal regulations already exist governing some overdraft fee practices, and the Consumer Financial Protection Bureau says it plans to propose more rules after further examination of the issues involved.

At the same time, class action attorneys are examining the practices at certain banks and credit unions to determine whether or not they comply with existing laws.

Case Study: ESL Federal Credit Union

One of the institutions falling within this investigation is ESL Federal Credit Union of Rochester, N.Y. ESL was founded in 1920 as the Eastman Savings and Loan Association, with the objective of serving employees of the Eastman Kodak Company.

Today, ESL Federal Credit Union has opened its services to members of the Greater Rochester area. ESL says it now serves 330,000 members with total holdings of $5.9 billion in assets.

By default, ESL enrolls qualified checking account holders into its ESL Courtesy Pay service. This service automatically covers overdrafts caused by ESL checks, automatic ACH withdrawals, or ESL Bill Pay transactions.

Overdrafts of up to $500 or $1,000 are covered, depending on the type of checking account. For each transaction covered under Courtesy Pay, ESL charges a fee of $37.

ESL says debit card transactions are not automatically covered by Courtesy Pay, but members may affirmatively opt into that protection if they want. For the other covered types of transactions, Courtesy Pay coverage is automatic unless the member opts out.

As an alternative to relying on Courtesy Pay, ESL also offers to cover overdrafts using a Cash Reserve Account. This service automatically covers overdrafts by advancing the member money in $100 increments from a flexible line of credit. These lines of credit range from $500 to $5,000.

ESL says it does not charge a fee for each such transaction, but it does charge interest on funds advanced.

ESL’s third option, CheckOK, covers overdrafts with funds from a linked savings account. The credit union charges a $5 fee per each day the service is used.

ESL Federal Credit Union notes that Courtesy Pay may continue to be in effect in addition to Cash Reserve and CheckOK. It can cover overdrafts that exceed the credit limit associated with Cash Reserve or the funds in the linked account associated with CheckOK.

So, members who enroll in one of those two services without opting out of Courtesy Pay could see one of their transactions covered by Courtesy Pay – and be assessed the $37 transaction fee.

If you have been the victim of excessive overdraft fees, contact an experienced consumer rights attorney for a free case evaluation.

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