Review Policies for Re-ordering Debit Transactions

By Brad Mundine, senior manager of risk management, CUNA Mutual Group

The National Credit Union Administration (NCUA) hasn’t yet issued guidance on the practice of re-ordering (or “batching”) debit transactions so that the highest dollar amounts clear first. However, as many large banks have already paid multi-million-dollar settlements for class-action lawsuits, it’s clear that smaller institutions such as credit unions should review their overdraft practices.

In July, U.S. Bank became one of about 13 banks to settle potential class-action lawsuits since 2010. The plaintiffs alleged they’d been charged excessive overdraft fees because debit card transactions were re-ordered to clear the largest charges first, leaving more, smaller transactions subject to overdraft fees.

U.S. Bank agreed to a $55 million settlement. In similar suits since 2010, Bank of America settled for $410 million and JP Morgan Chase for $110 million. A court ordered Wells Fargo to pay account holders $203 million.

More class-action suits and regulations may be coming

A non-profit group that helped to find plaintiffs for some of these suits,, is now seeking plaintiffs to join potential lawsuits against smaller financial institutions. The group’s website offers free case reviews for consumers who believe they’ve been charged overdraft fees unfairly.

Transaction re-ordering is also part of a Consumer Financial Protection Bureau (CFPB) investigation of overdraft practices, launched in February. The bureau accepted public comment through June 29. It’s unclear whether any regulations or oversight affecting credit unions will come of this investigation. But it’s another reason to take a careful look at your overdraft protection program.

FDIC letter addresses clearing order

For regulatory guidance, review the Federal Deposit Insurance Corporation’s (FDIC’s) Nov. 24, 2010, letter, “Overdraft Payment Programs and Consumer Protection – Final Overdraft Payment Supervisory Guidance” (FIL-81-2010).

In the letter, the FDIC expresses concern with risks posed by automated overdraft payment programs that use pre-determined criteria to establish whether non-sufficient funds transactions qualify for overdraft coverage. The FDIC expects its supervised financial institutions to review procedures for processing overdrafts to ensure they avoid maximizing customer overdrafts and related fees through the clearing order.

The letter provides an example of an appropriate clearing procedure that includes clearing items in the order received.

The clearing order of debit transactions is only one element of overdraft practices under scrutiny of the CFPB, plaintiff lawyers, and other organizations. Credit unions should be reviewing all overdraft procedures.

It’s also important to educate members on your overdraft policies. As these lawsuits and investigations continue to create headlines, it’s important for members to see that your overdraft program is coherent and fair.

Brad Mundine is CUNA Mutual Group’s senior manager of risk management. Reach him at


CUNA Mutual Group is a strategic partner of Strategic Link, the NWCUA’s wholly-owned service corporation that provides the Association’s member credit unions with exclusive high-quality, competitively priced products and discounted services. Questions? Contact Sales and Marketing Associate Craig Reed: 206.340.4789,

Posted in Around the NW, Financial Education.