Johnson et al v. Redstone Federal Credit Union et al

On September 24, 2018, a class action lawsuit was filed in the U.S. District Court for the Northern District of Alabama against Redstone Federal Credit Union. The plaintiffs, including Lisa Johnson, Melinda Wray, and David Small, alleged that the credit union manipulated the posting order of debit card transactions to maximize overdraft fees. Instead of processing transactions chronologically, the credit union re-sequenced them from highest to lowest dollar amount, thereby depleting account balances faster and generating more overdraft charges. The plaintiffs claimed this practice breached the duty of good faith and fair dealing, violated consumer protection laws, and unjustly enriched the credit union. The case sought restitution and changes to the overdraft policies. After extensive litigation, a proposed $32 million settlement was reached to compensate affected members.

The parties reached a $32 million class action settlement. The U.S. District Court granted preliminary approval of the settlement, which provided compensation to hundreds of thousands of credit union members who were assessed overdraft fees due to the alleged reordering practice.

Whether Redstone Federal Credit Union improperly reordered debit card transactions from highest to lowest dollar amount rather than in chronological order to artificially increase overdraft fees, thereby breaching its account agreements and violating principles of good faith and fair dealing.

The case highlighted the widespread practice of transaction reordering among financial institutions and spurred many credit unions and banks to review and change their overdraft policies to avoid similar litigation. It reinforced consumer advocacy efforts for greater transparency in fee assessments and contributed to heightened regulatory scrutiny of overdraft programs.