In what may start of a new spate of consumer lawsuits against credit unions, a member of Los Angeles' Xceed Financial Federal Credit Union is claiming the financial institution engaged in deceptive and unfair practices by re-sequencing his debit transactions to create overdrafts in his accounts.

In a purported class-action lawsuit filed in U.S. District Court for the Central District of Los Angeles, Cuthbert Shillingford claims the $750 million, El Segundo-based credit union engages in so-called batching of debit transactions to pay off the biggest debits first, which causes additional overdrafts and attendant fees.

The charges are similar to those forcing numerous big banks to pay millions of dollars in settlements and come as a class-action group in Washington is soliciting potential overdraft suits against credit unions across the country (see story).

Moreover, the Consumer Financial Protection Bureau's in February announced it is targeting overdraft-protection practices (see story).

Over the past year, dozens of banks have entered into multi-million-dollar settlements to end similar overdraft suits, including Intrust Bank, JPMorgan Chase & Co., Fifth Third Bancorp, UMB Bank and Bank of Hawaii (see story). Bank of America, paid out $410 million to settle its suit, and Chase paid $110 million (see story).

Shillingford, who has been a member of Xceed the past four years, said the practice of resequencing, or batch processing, has caused him to pay fees on dozens of overdrafts by having his checking account depleted quicker than if the transactions were deducted in chronological order. He is seeking more than $5 million in damages for what he describes as a class of Xceed members that could numbers in the tens of thousands.

Representatives of Xceed, the one-time Xerox Employees Federal Credit Union, did not immediately return a phone call seeking comment.

According to the suit, there are two ways Xceed re-sequences transactions. First, by processing large-dollar transactions before low-dollar transactions, no matter which transactions occurred first, and by resequencing transactions that occur on different days as if they occurred on the same day. The practice, according to the suit, results in multiple overdrafts when only one might have occurred.

Through the regular use of his debit card, Shillingford says he was charged repeated overdraft fees of $29, which the credit union automatically debits from his checking account. “However,” says the suit, “some of these excessive overdraft fees were not proper and were the result of Xceed’s re-sequencing of his transactions.”

“Thus, Xceed manipulates customer transactions to obtain overdraft fees at the expense of its customers,” claims the suit.

What do you think about this? Send us your feedback. Click Here.


Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry