In November 2014, we reported that class action lawsuits were being filed across the country by consumers against large banks regarding their involvement with short term loans. These actions allege that lenders were engaging in unlawful practices relating to online short-term, small dollar – or “payday” – loans, and were debiting consumers’ bank accounts automatically using automated clearing house (ACH) debits to collect loan payments. They further allege that even though consumers authorized the ACH debits, that banks have a duty to halt the debits under the National Automated Clearing House Association (NACHA) rules where banks are aware that the party requesting the debit is engaged in unlawful activities.
We also noted that consumers had little success in advancing this theory. This trend continued on March 20 of this year when the Eastern District of Pennsylvania rejected a class action at the motion to dismiss stage filed by consumer-plaintiffs against T.D. Bank, N.A. (“TD Bank”), advancing a similar theory. See Andrichyn v. T.D. Bank, N.A., No. 14-CV-3863, 2015 WL 1279492 (E.D.P.A. Mar. 20, 2015). In Andrichyn, the thrust of the plaintiffs’ allegations relate to TD Bank’s alleged duty under NACHA rules to monitor ACH debit requests and to stop the transactions where TD Bank was aware of payday lenders’ unlawful activity. However, the Court found that TD Bank did not violate NACHA rules because the rules:
- Required TD Bank to accept authorized ACH debits, which TD Bank must re-credit only in the event of a consumer dispute. The plaintiffs’ do not allege that any such dispute took place (see id. at *7); and
- Specifically permit TD Bank to charge overdraft fees as a result of ACH debits that overdraw consumers’ accounts. TD Bank’s right to charge overdraft fees is not limited by the nature of the transaction that caused the overdraft (see id. at *7-8).
The plaintiffs also alleged causes of action for breach of the covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment, and for violation of consumer protection statutes under Pennsylvania and New York State law. Each of these claims derive from the plaintiffs’ breach of contract claim and ultimately failed because, inter alia, TD Bank was permitted under NACHA rules to process the ACH debits in question from the plaintiffs’ accounts.
The Andrichyn case comes on the heels of a similar putative class action filed in the Eastern District of New York, where a federal judge dismissed the case on similar grounds. There, the Court held that: (1) NACHA rules did not apply to the ACH transactions at issue; and (2) even if the rules did apply, they entitle the bank receiving the ACH debit request to rely on the originating bank’s representation that the ACH debit request was authorized by the consumer.
LenderLaw Watch will monitor developments in these cases as they occur, and will continue to bring readers updates as they become available.