Federal Appeals Court Revives Class-Action Suit Against Capital One

A federal appeals court has revived a proposed class-action lawsuit accusing Capital One Financial Corp. of imposing illegal overdraft fees on customers.

According to news from Reuters, the 2nd U.S. Circuit Court of Appeals in Manhattan said today that a lower court judge was wrong to dismiss a breach of contract claim. It also revived a claim under a New York state consumer protection law.

“We’re pleased with the outcome,” said Matthew Wessler, a lawyer for the plaintiff Tawanna Roberts, a Capital One customer in New York City. “Capital One illegally extracted overdraft fees for purchases that were made when consumers had enough funds in their accounts.”

Capital One did not respond to a request for comment.

While it’s common for banks to instate an overdraft policy, typically a fee of $35, when they pay merchants for purchases by customers with insufficient funds in their accounts, Roberts accused Capital One of illegally imposing overdraft fees when it settled transactions — the time it paid merchants — instead of when it authorized transactions at the cash register.

For example, if a customer with $100 in her account made five $10 purchases and then made a $100 purchase, she would face only one overdraft fee if the transactions were settled in order, but five fees if the $100 purchase were settled first.

Capital One told customers they could “elect to pay checks and other items drawn on your deposit account or to permit automatic bill payments and withdrawals against your account for an amount in excess of your available balance (an ‘Overdraft’).”

But the three-judge appeals court found it “equally reasonable” to understand the term “overdraft” as referring to Capital One’s decision to make a payment at the time of authorization, or the payment itself at the time of settlement.

As a result, it returned the case to U.S. District Judge Lorna Schofield in Manhattan for further proceedings. The appeals court upheld Schofield’s dismissal of three other claims.

The Consumer Financial Protection Bureau has said fees from U.S. overdraft policies and bounced checks totaled about $15 billion in 2016.