The State Employees Federal Credit Union (SEFCU) of New York is the subject of an investigation looking into harmful banking practices. The SEFCU overdraft line of credit investigation is focusing on allegedly predatory overdraft fees.

Aside from the SEFCU overdraft line of credit investigation, more than a dozen credit unions located across the country are being investigated over possibly misleading overdraft policies and fee structures. At least two lawsuits are seeking class action status, according to a report by the Detroit Free Press in September 2017.

These lawsuits allege that the policies of several financial institutions to process higher payments first, such as mortgages or rent payments, is intentionally structured to allow the institutions to charge more frequent overdraft fees. When this policy is in place, small purchases such as coffee are more likely to lead to an overdraft fee. When customers make several small purchases in a row, these fees can add up quickly and unexpectedly.

The lawsuits are also challenging financial institutions on their alleged failure to adequately disclose the fees associated with “opt-in” practices. Customers cannot be charged overdraft fees for ATM withdrawals or most debit card transactions unless they have opted in, due to federal regulations established in 2010.  However, the lawsuits allege that many customers do not understand what they are agreeing to when they agree to these terms.

What Are Overdraft Fees?

Penalties charged by a financial institution when it pays a transaction despite insufficient funds in the account are called overdraft fees. The financial institution will either move funds from another of the customer’s accounts into the account they are attempting to access or will loan the funds to the customer, and charge a fee.

According to a June 2014 study released by the Pew Charitable Trusts, consumers spend roughly $15 billion a year in overdraft fees. The study also reported that frequent overdrafters, or people who overdraw their accounts 10 or more times in a year, account for 9 percent of checking accounts, but 79 percent of all overdraft fees.

According to the Consumer Financial Protection Bureau, some consumers can pay more than $400 a year in overdraft fees from ATM and debit card transactions. These fees disproportionately affect young people, minorities, and those with lower income and account balances.

The Pew report, entitled “Overdrawn,” includes statistics about the demographics of consumers most likely to be affected by these kinds of penalties. According to Overdrawn, young people are much more likely to pay overdraft fees. People who earn less than $40,000 a year account for more than 50 percent of the overdraft fees assessed.

Non-white customers are over 80 percent more likely than white people to pay an overdraft fee. Additionally, people who have a credit card are 34 percent less likely to be subject to overdraft fees than those who do not.

Consumer advocates are concerned that members paid excessive fees as part of the SEFCU overdraft line of credit program.

Overdraft Lawsuits

The SEFCU overdraft line of credit investigation is one of many cases looking into overdraft fee policies in the last few years. According to the Credit Union Times, the MidFlorida Credit Union reached a $2.375 million settlement in a class action lawsuit regarding disclosures for overdraft fees in July 2017.

In March 2017, Huntington Bank reached a settlement regarding posting debit card transactions out of order, from highest to lowest. They agreed to the $15.9 million settlement despite their claim to be in compliance with the law.

If you are a customer of SEFCU and have been charged overdraft fees, you may be eligible to join the SEFCU overdraft line of credit investigation.

You may have a legal claim if your were charged excessive overdraft fees by one of these banks or credit unions:

• Alliant Credit Union
• Astoria Bank
• BECU (Boeing Employees Credit Union)
• Nationwide
• Pacific Western
• Patelco Credit Union
• State Employees Federal Credit Union (SEFCU – New York)
• Sterling Bank
• Educational Employees Credit Union (California)

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