Capital One overdraft fees are prominent concerns for many of their customers, some of whom have accused the financial institution of improperly charging insufficient fund fees. A federal appeals court has recently revived a prior class action lawsuit alleging improper Capital One overdraft fees.

Overdraft fees are incurred when a customer makes a transaction that overdraws their primary bank account. When this occurs, the bank or credit union transfers money from a secondary account to cover the charge.

Capital One overdraft fees are normally $35 per insufficient transaction, which can quickly accumulate and compound if not paid off quickly. However, overdraft fees can sometimes be delayed if the transaction does not immediately occur, which is when the merchant requests payment.

This process can take several days sometimes, which can change the financial amount in overdraft fees the consumer is obligated to pay. This practice was allegedly occurring with Capital One overdraft fees, with plaintiffs alleging the overdraft protection was not fairly explained.

Overview of Proposed Class Action Capital One Overdraft Fees Lawsuit

The Second Circuit Court of Appeals in Manhattan opted to bring back the claim against Capital One after it was previously dismissed by another judge. The proposed class action Capital One overdraft fees lawsuit had initially been dismissed over lack of evidence, with the claimants alleging the rules of the bank’s overdraft protection policy were poorly worded and confusing.

New York plaintiff Tawanna Roberts alleged the financial institution had wrongfully imposed overdraft fees at the time of settlement (when the retailer requests payment from the bank) rather than at the time of authorization. This means the Capital One overdraft fees potentially occurred days after customers made purchases at stores, rather than at the time the transaction occurred. This allegedly caused Capital One overdraft fees to be processed out of order creating additional overdraft fees for consumers in certain cases and adding unnecessary strain on consumers.

Capital One tried to argue that its definition of Overdraft was reasonably sufficient, stating that customers could “elect to pay checks and other items drawn on their deposit account or to permit automatic bill payments and withdrawals against your account for an amount in excess of your available balance (an ‘Overdraft’).” However, the three judges from the appeals court that brought back this proposed class action Capital One overdraft fees lawsuit, agreed that the term “overdraft” was not clearly defined in the financial institution’s overdraft protection policy.

In addition, the judges found that it was reasonable for consumers to have a clear definition regarding when financial institution would apply overdraft fees; whether they would occur at the time of the payment authorization or at the time of settlement.  At this time, the proposed class action Capital One overdraft fees lawsuit is currently being reviewed by U.S. District Judge Loma Schofield in Manhattan.

It is important to note that consumers have been reporting unfair overdraft fees from different banks and credit unions across the country, with different sources indicating the financial institutions’ incentives. According to the Consumer Financial Bureau, the total amount of overdraft fees and other insufficient fund fees paid by consumers had totaled $15 billion in 2016.

Overdraft protection was originally developed as a way to help protect consumers against the embarrassment of card decline or bounced checks but has since become a source of contempt for many consumers. Due to effects of conscious spending and economic recession, banks and credit unions allegedly began using underhanded tactics to maximize overdraft fee charges.

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