Overdraft Fees Amount to Criminal Interest, Class Action Lawsuit Alleges

A class action lawsuit alleging Community Savings Credit Union and other institutions charged what amounted to criminal interest in overdraft fees has wound its way through the British Columbia court system.

Lead plaintiffs, Andrew Bodnar and John Humphrey, initially lodged their complaint in 2003. In it, they alleged that nearly a dozen credit unions had assessed excessive overdraft fees. The class action lawsuit accused the credit unions of charging customers “criminal interest” with high fees when they overdrew their accounts.

Indeed, one of the plaintiffs alleged that between November of 1997 and February of 2003, he was assessed over 100 overdraft fees. He claimed the fees, if they were considered interest on a loan, amounted to a huge rate, over 1000% in one instance.

The class action lawsuit alleged that the credit unions all engaged in charging excessive overdraft fees on customers, from a low of approximately $66,000 for one institution to a high of $1.7 million for another.

Credit Unions Named as Defendants

The following institutions were accused of hitting consumers with excessive overdraft fees in the class action lawsuit:

• Community Savings Credit Union
• North Shore Credit Union
• Chemainus Credit Union
• Comox Valley Credit Union
• Kootenay Savings Credit Union
• VantageOne Credit Union
• Village Credit Union
• Greater Vancouver
• Community Credit Union
• Coastal Community Credit Union
• Vancouver City Savings Credit Union

Overdraft Fees Amount to Criminal Interest, Plaintiffs Say

The class action lawsuit accused the defendant credit unions of violating Canada’s Criminal Code, specifically s. 347 prohibiting individuals and organizations from charging criminal interest rates on loans. A “criminal rate,” under the law, includes interest exceeding 60% on the credit advanced under the loan.

The plaintiffs argued that any bank fee in excess of $5 constituted criminal interest and was prohibited under the Criminal Code. In addition to violating the law, they accused the credit unions of unjust enrichment and sought restitution and damages for themselves and Class Members.

The proposed class in the overdraft fee class action lawsuit includes individuals in British Columbia who were members of any of the defendant credit unions who were hit with an overdraft fee greater than $5.

Credit Unions Claim Fees Are Administrative

The defendant credit unions pushed back, arguing to a judge that the overdraft fees covered the administrative costs of administering their overdraft protection programs. The fees, claimed the defendants, were covering the assessment of whether the credit unions would advance the overdraft.

The credit unions pointed out that the criminal interest component of the law was meant to address “loan shark” situations and that the overdraft fee charged by the institutions should not be considered “interest’ as defined in the criminal code.

British Columbia Courts Agree Fees Are Criminal Interest

A summary trial judge agreed with the plaintiffs, finding that the credit unions’ overdraft fees amounted to criminal interest under the law. Justice Gray rejected the credit unions’ argument that the overdraft fees were for the cost of assessing whether the institution would cover the overdraft. The judge concluded that the credit unions’ decision was a business decision and fell under the definition of “interest” under the law.

The defendant credit unions countered, taking the class action lawsuit to the British Columbia Court of Appeals. However, the appeals court upheld the decision, rejecting the credit unions’ attempt to deem the overdraft charges an administrative fee.

The class action lawsuit was revisited by the Supreme Court of British Columbia in 2019. In an opinion by Justice Brundrett, the court adopted the conclusion reached by the previous courts.

Excessive Bank Fees

Overdraft fees are not the only banking practice under scrutiny. Consumers have also filed a class action lawsuit Canada over non-sufficient fund (NSF) fees. Similar to overdraft fees, NSF fees are levied on accounts without sufficient funds to cover pending transactions.

The NSF fee class action lawsuit alleges that ten banks charged exorbitant penalties on customers, between $45 to $65.

Consumers who think they may have been subject to any excessive or abusive fees by their bank or credit union can join a class action lawsuit investigating these practices. Click the join button below to submit your information. If you qualify, a lawyer will contact you to discuss the details of your potential case for free. 

Have you been hit with excessive overdraft fees by your bank or credit union within the last five years? We want to hear about it! Submit your information for a free case evaluation. 

The lead plaintiffs and proposed Class Members are represented by P.R. Bennett and M.W. Mounteer.

The Overdraft Fee Class Action Lawsuit is Bodnar, et al. v. Community Savings Credit Union, et al., Case No. S047104, in the Supreme Court of British Columbia, Canada.

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