Banks and banking – NSF fees

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Where a bank has moved to dismiss an account holder’s complaint over fees charged for insufficient funds, that motion should be denied because (1) the plaintiff has stated viable claims that the bank breached express contract terms and the implied covenant of good faith and fair dealing and (2) his claims are not barred by a contractual notice provision or preempted by the Truth in Savings Act.

“Stephen O’Neil claims that Middlesex Savings Bank breached its consumer checking account agreement and fee schedule (1) by charging multiple fees for insufficient funds (‘NSF fees’) if a particular check or electronic charge is submitted more than once against an account without sufficient funds, and also (2) by charging an NSF fee when a vendor verifies an account by submitting a tiny deposit that is immediately offset by an equally tiny withdrawal, if the account lacks sufficient funds when the withdrawal is processed. He seeks to assert these claims on behalf of proposed classes of Middlesex account holders.

“Middlesex has moved to dismiss this action on the ground that the disputed charges are allowed under its fee schedule. It also contends that, in any case, O’Neil’s claims are barred because he failed to comply with a contractual notice provision and because they are preempted by the federal Truth in Savings Act.

“The Court disagrees and will deny the motion to dismiss. It concludes that the relevant contractual language is ambiguous and must be construed against Middlesex, O’Neil has stated viable claims that Middlesex breached express contract terms as well as the implied covenant of good faith and fair dealing, and O’Neil’s claims are not barred by the notice provision or preempted by federal law. …

“When customers open a checking account with Middlesex, they agree to be bound by the terms and conditions of the bank’s Consumer Account Agreement (the ‘Agreement’), which incorporates by reference its Consumer Fee Schedule (the ‘Fee Schedule’). …

“The facts alleged in the complaint suggest that the Agreement and the incorporated Fee Schedule constitute a contract of adhesion that consumers must accept, with no changes, if they wish to open or maintain an account with Middlesex. …

“The Court must therefore interpret the Agreement and Fee Schedule in the way they would be understood by a typical, reasonable account holder. …

“The Agreement’s reference to the undefined term ‘item’ is ambiguous, and does not clearly suggest that multiple NSF fees may be incurred for resubmission of the same check or electronic charge. … Thus, before January 2022, the Agreement was ambiguous as to whether an NSF fee would be charged once for each item presented for payment against an account with insufficient funds, no matter how many times the same item was presented, or whether instead separate NSF fees would be charged each time the same item was presented for payment. …

“The Agreement is also ambiguous about what happens when a vendor seeks to verify a checking account by electronically depositing and then immediately withdrawing the same, very small amount of money. These sort of ‘micro-deposit verification transactions’ are sometimes called ‘phantom transactions’ because, by design, they do not result in any change in the account balance. …

“The facts alleged by O’Neil plausibly suggest that Middlesex took an extreme and unwarranted view of the Agreement and Fee Schedule, did so in order to deprive its account holders of the fruits of the contract, and thereby violated the implied covenant of good faith and fair dealing.”

O’Neil v. Middlesex Savings Bank (Lawyers Weekly No. 09-083-23) (9 pages) (Salinger, J.) (Suffolk Superior Court) (Docket No. 2284CV01579-BLS2) (June 5, 2023).

Click here to read the full text of the opinion.