What’s in a Word?
A credit union in Virginia recently learned the hard way that ambiguous language in an account agreement can ruin one’s whole day. In that case, it means that the credit union will have to defend a class-action lawsuit based on ambiguity in the language governing how the credit union assesses fees for overdrafts and electronic funds transfers.
The case involves two different versions of the agreement. The earlier version “contains reasonably ambiguous language regarding how [the credit union] assesses fees for each ‘item.’” The later version “is clear how [the credit union] assesses fees for each ‘item.’” But the depositor disputes the authenticity of the later version, and the credit union cannot prove that the depositor received the later version, let alone continued to use the account after receipt. At this early stage of the lawsuit, therefore, the credit union is stuck with the earlier, ambiguous version.
The depositor alleged that the credit union drafted “terms not readily discernible to a lay person” and then took advantage of its customers by “abus[ing] its discretion in its own favor.” For example, if a depositor presented a debit card for payment of a purchase at a time when the account held sufficient funds to cover the withdrawal, the credit union withheld funds sufficient to cover the purchase. But when the creditor later presented the item for payment at a time that payment would overdraw the account, the credit union charged an overlimit fee. The court held that the contract was ambiguous regarding whether the credit union could charge overlimit fees at the time of presentment rather than at the time of authorization.
The credit union argued that the federal Truth in Savings Act preempts such claims. But the court held that the state-law breach-of-contract claims did not interfere with or otherwise hinder TISA and so found no preemption.
This practice could also result in multiple overdraft fees if the merchant presented the item additional times. The depositor argued that charging multiple fees for one transaction violated the agreement that the depositor could be subject to “a charge” when merchants present such items.
The depositor also complained that the opt-in form used for electronic funds transfers failed to inform the customer that the transfer could be subject to such fees. The court held that it was also therefore ambiguous. As a result, the credit union will have to defend the action.
It is tempting to think that this issue arose in a distant state and applies only to credit unions, or depository institutions, or the like. But ambiguities can arise in any agreement or communication, and the general rule is that the court will interpret the ambiguity against the party that wrote the document and in favor of the other party. That rule seems to apply even more forcefully where the other party is a consumer.
As we sometimes say, if you are the defendant in a class-action lawsuit, even if you eventually win, you’ve already lost. And it is the sort of issue that the CFPB might take a keen interest in. So, what’s in a word? A lot. And it is best to avoid those issues if you can, making it worthwhile to review forms periodically.
