In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig., 1 F.Supp.3d 34 (E.D.N.Y. 2014)
This case involves more of the charming practice of low-to-high charge posting, causing consumers to rack up numerous $35 overdraft charges in a single day for using their debit cards, often to make small purchases. Plaintiffs alleged that HSBC failed to clearly disclose posting order and then aggregated several days’ worth of charges at once, didn’t advise consumers that they could opt out or alert them that a charge would result in an overdraft, and failed to post deposits in a timely manner, resulting in additional overdraft fees. Multiple cases were centralized as multidistrict litigation, resulting in a consolidated class action complaint.
HSBC argued preemption by federal banking law and regulations and the court rejected its claim. The feds allow high-to-low posting, but that doesn’t mean that misleading conduct in relation to such ordering is exempt from state regulation, as the relevant federal agency has specifically stated with respect to California’s UCL. However, “inasmuch as the Plaintiffs seek to impose liability on HSBC for the bank’s failure to sufficiently disclose its posting method, that argument is preempted.”
The court then found that the plaintiffs could only allege claims under a state’s consumer protection law if a named plaintiff had a sufficient connection to that state. That left only the laws of California and New York. The court commented that adding new named plaintiffs from different states to this case would be difficult in light of the discrepancies between the states’ laws.
While the breach of contract claims failed for want of a specific breached term and conversion claims failed because the money at issue was the bank’s once deposited, the claims for breach of the covenant of good faith and fair dealing survived. New York §349 deceptive business practices claims were dismissed because plaintiffs didn’t identify overdraft fees charged within the three-year limitations period.
Rule 9(b) applied to the California statutory claims that depended on fraudulent conduct. The CLRA claims went because money isn’t a “good” or “service” under the CLRA, as required. However, plaintiffs stated a claim under the FAL by alleging that consumers wouldn’t understand HSBC’s statements about choosing the order in which to post transactions to mean that HSBC would hold transactions made over several days and then post them from high-to-low. Instead, “a reasonable consumer would expect to be able to accurately track his or her own expenditures to avoid overdraft charges. The Plaintiffs adequately allege that this is nearly impossible given HSBC’s overdraft and posting policies.” Likewise with the “fraudulent” prong of the UCL.
There’s an open question about what a consumer, as opposed to a competitor, alleging “unfairness” under the UCL must show—that the harm to the victim outweighs the utility of the defendant’s conduct, or that there’s violation of public policy as declared by specific constitutional, statutory, or regulatory provisions. Either way, plaintiffs stated a claim. Whether $35 was an insubstantial injury was a factual question; the court wouldn’t let a corporation escape liability just by spreading its unfairness out sufficiently over members of the public. And violation of the duty to act in good faith would violate public policy. Unlawfulness UCL claims therefore also survived.