A recent U.S. Court of Appeals for the Eleventh Circuit ruling has found that banks cannot force clients into arbitration in lieu of litigation over overdraft fees for debit card purchases. The court noted that arbitration was a matter of contract that cannot be a requirement. However, unless the parties have agreed to it. The three-judge panel state the lower decision of the Southern District of Florida. Thus, this denied a motion to force arbitration by RBC Bank. RBC Bank would later be part of PNC Bank.

 

The Dispute Explained

This was a case of an individual who had a checking account with RBC. The man used his debit card for that account. He claimed that RBC failed to properly warn him of possible overdraft fees at points of sale when he used his debit card. He also argued that RBC denied rearranged the order of his purchases through his debit-card transactions so that the larger ones would be processed first. By doing so, he argued, RBC was able to more quickly drive his account balance down to zero and maximize the number of separate overdraft fee charges. A flat fee was charged for each overdraft, regardless of the amount of the actual overdraft itself. The lawsuit was combined with other customers in a checking account overdraft multidistrict litigation (MDL).

 

RBC moved to compel arbitration, which the Southern District of Florida denied. RBC appealed the decision and lost. The Eleventh Circuit opinion addressed RBC sending customers an arbitration clause as an amendment to a previous agreement that did not include the clause. The bank argued that the individual agreed to the amendment because he failed to opt out. First, the Court of Appeals noted that the bank was on notice that the individual was opposed to arbitration since he was already litigating against it, even though he did not notice the fine print of the mailing. Second, since he already was in litigation, the bank should have sent the mailing to his legal counsel. The Court cited the American Bar Association’s 2014 Model Rules of Professional Conduct to support its opinion.

 

Stay in the Know

As a legal practitioner, it is important to stay up-to-date on the law as it is constantly evolving. For more information on the law in the Eleventh Circuit, click here.

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