Although some banks and credit unions are eliminating overdraft fees, there are over 10,000 banks and credit unions in the United States, and many of them still charge overdraft fees to their customers. In 2020, consumers paid $12.4 billion in overdraft fees alone. These fees provide customers an opportunity to file class action suits against such institutions alleging breach of the customer’s account contract. Over the past 10 years, plaintiffs have filed various types of class action suits claiming improper overdraft fee practices. In the past few years, many of the suits filed against banks and credit unions involve fees charged on debit card transactions, which are authorized on a positive balance but settle later when the account has a negative available balance. These fees are commonly referred to as APPSN (Approve Positive, Purportedly Settle Negative) fees.
In general, there is a delay between when a debit card transaction is authorized and when the transaction settles to a customer’s account. When these transactions are initiated, the merchant sends an authorization request to the customer’s financial institution. The financial institution subsequently authorizes the transaction based on the customer’s available balance at that time. Typically, a hold is placed on the customer’s account after authorization to sequester the funds for payment to the merchant. The merchant is not paid until the transaction is sent to the financial institution for settlement, which may be up to several days after the authorization. During this “float” time, the customer may have initiated other transactions that overdrew their account. Because financial institutions charge fees based on the account’s balance at posting, the customer may receive an overdraft fee on the original debit card transaction at the time of settlement.
Plaintiffs claim that these fees do not actually overdraw the customer’s account because the customer had available funds at authorization and that APPSN fees breach the customer’s account contract with the financial institution.