Consumer Financial Services Law Report

In an action challenging a bank's practice of paying its customers' larger checks first, an Alabama Circuit Court granted class certification to checking account holders who claimed the bank intentionally forced them into overdraft status. (Snow, et al. v. Compass Bancshares Inc., et al., No. CV - 98- 2384 (Ala. Cir. Ct. 12/13/00).)

Jucretia Snow, Charles Butler Jr., and Mary Kennedy had checking account with Compass Bank N.A. and incurred service charges even though there appeared to be sufficient funds in their accounts on the day of presentment of multiple checks. The customers sued Compass Bank for breach of contract, fraudulent suppression and conversion "in connection with (the bank's) uniform practice of paying its customers' largest check(s) first for the purpose of shifting the customer into 'overdraft status,' before multiple smaller checks, for which there otherwise would be sufficient funds, are paid."

The customers alleged Compass increases the amount of charges a customer pays by assessing overdraft fees and non-sufficient funds fees on the smaller checks. They alleged this practice is intended to generate increased service charges. The class also claimed the bank did not disclose this practice in the account agreements.

The customers moved for class certification of all Compass checking account holders who have incurred service charges when there were sufficient funds in their account on the date of presentment.

The court determined the class met the numerosity requirement of Ala. R. Civ. P. 23(a)(1) because there are thousands of members. The court also determined the rule's commonality requirement was satisfied because there are questions common to the class, including whether the bank breached its contractual agreement by forcing an overdraft status and whether it failed to disclose its practice.

The bank rebutted that fraud actions are never appropriate for class certification. The court noted, however, that in Ex parte Household Retail Servs. Inc., 744 So.2d 871 (Ala. 1999), the Alabama Supreme Court affirmed the certification of fraud class actions where written misrepresentations were distributed to all class members.

The bank also claimed certification of the fraudulent suppression claim was not proper because it required a case by case inquiry into each member's reliance. The customers countered it was not necessary to establish inducement and reliance upon material omissions by direct evidence where claims arose from standardized forms. Agreeing, the court stated "(w)here, as here, the alleged fraudulent suppression stems from written misrepresentations, that were materially similar, to which (the customers) were uniformly exposed, a Class may be certified for purposes of addressing fraud under Rule 23(b)(3)." The court granted class certification.

The bank moved to compel arbitration. The court noted, however, the action had been pending for one-and-a-half years before the bank tried to retroactively add an arbitration clause to its form contract. The court determined the bank cannot "unilaterally and retroactively deprive the class members of their vested right to proceed" with the action. Furthermore, the court found that even if the arbitration clause applied, the bank waived its right to invoke it by engaging in discovery. It denied the bank's motion to compel.

Richard Dorman of Cunningham, Bounds, Yance, Crowder and Brown of Mobile, Ala., represented the class. George Walker and Michael Edwards of Hand Arendall of Mobile, Ala., and Spencer Taylor of Balch & Bingham in Birmingham, Ala., represented the bank.