Five Star Bank sued for overdraft fees

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A federal lawsuit seeking class action status has been filed against Five Star Bank (FSB) claiming the bank is improperly charging customers overdraft fees.

Wendy Gurrant, of Livingston County, and Tanya Hoover, an Ontario County resident, are the named plaintiffs in the lawsuit filed in U.S. District Court for the Western District of New York.

They are represented by the New York City law firm Weitz & Luxenberg PC.

The lawsuit claims the bank charges customers overdraft fees on transactions where the required funds have already been set aside.

The lawsuit challenges the bank’s practice of charging overdraft fees on what the complaint callas “authorize positive, purportedly settle negative (APPSN) transactions.”

When a debit card transaction takes place on an account with adequate funds to cover the transaction, the bank reduces the checking account balance by the amount of the purchase, sets aside funds to cover that transaction, and the consumer’s available balance reflects that subtracted amount, according to the complaint.

But the bank still assesses overdraft fees on many transactions, the suit claims.

“Despite putting aside sufficient available funds for debit card transactions at the time those transactions are authorized, defendant later assesses (overdraft) fees on those same transactions when they purportedly settle days later into a negative balance,” the suit claims.

“When a customer makes a purchase with a debit card, defendant sequesters the funds needed to pay the transaction, subtracting the dollar amount of the transaction from the customer’s available balance. Such funds are not available for any other use by the account holder, and such funds are specifically associated with a given debit card transaction,” according to the complaint.

“When any subsequent, intervening transactions are initiated on a checking account, they are compared against an account balance that has already been reduced to account for any earlier debit card transactions. This means that many subsequent transactions incur (overdraft) fees due to the unavailability of the funds sequestered for those debit card transactions.”

“Still, despite keeping those held funds off-limits for other transactions, defendant improperly charges (overdraft) fees on those APPSN transactions,” the suit claims.

Customers would have no reason to anticipate the overdraft charges because it is not properly disclosed, the suit claims.

“There is no justification for these practices, other than to maximize defendant’s overdraft fee revenue,” the suit claims.

“These practices breach contractual promises made in defendant’s account contract — a contract which fundamentally misconstrues and misleads consumers about the true nature of defendant’s processes and practices,” according to the lawsuit.

“In plain, clear, and simple language, defendant’s account contract promises that defendant will only charge (overdraft) fees on transactions that have insufficient funds to cover that transaction,” according to the suit.

FSB charges a fee of up to $40 for each overdraft.

“For APPSN transactions, which are immediately deducted from a positive account balance and held aside for payment of that same transaction, there are always funds to cover those transactions — yet defendant assesses overdraft fees on them anyway,” the suit claims.

“Defendant actually authorizes transactions on positive funds, sets those funds aside on hold, then fails to use those same funds to pay those same transactions when they settle,” the suit claims.

“In reality, defendant’s actual practice is to inspect the same debit card transaction twice to determine if the transaction overdraws an account — both at the time a transaction is authorized and later at the time of settlement,” according to the complaint.

The proposed class would include all FSB checking account holders who, within the statute of limitations, were charged multiple fees on the same item. The suit also seeks an alternative subclass of New York residents.

“The classes consist of at least thousands of members,” according to the complaint.

The lawsuit accuses FSB of breach of contract, breach of the covenant of good faith and fair dealing, and deceptive acts or practices, under New York state law, and seeks actual damages, statutory damages, punitive damages and attorney’s fees and costs.

Five Star Bank has not yet filed an answer to the complaint. In an April 11 letter to Chief U.S. District Court Judge Elizabeth A. Wolford, Lisa L. Smith, an attorney at Phillips Lytle LLP representing the bank, requested a 30-day extension, until May 13, to file an answer or otherwise respond to the complaint.

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