Gahm v. Wings Financial Credit Union

Background

Plaintiff Debra Gahm filed this putative class action (a lawsuit brought on behalf of a group of similarly situated people) against Wings Financial Credit Union, alleging that Wings violated the Electronic Fund Transfer Act (EFTA), 15 U.S.C. § 1693 et seq., and its implementing rule, Regulation E, 12 C.F.R. § 1005 et seq., as well as the Minnesota Consumer Fraud Act (MCFA), Minn. Stat. § 325F.69, by failing to properly disclose its overdraft fee practices.

The case was originally filed in state court on January 30, 2023, went through multiple amended complaints, and was removed to federal court by Wings on May 6, 2025, after Gahm filed her Second Amended Complaint (SAC). Wings moved to dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

Statutory and Regulatory Framework

Regulation E requires that before a financial institution can charge a customer an overdraft fee on ATM or one-time debit card transactions, the institution must: (1) provide a written notice, segregated from all other information, describing the overdraft service; (2) give the customer a reasonable opportunity to affirmatively consent (opt in); (3) obtain that consent; and (4) confirm the consent and inform the customer of their right to revoke it. 12 C.F.R. § 1005.17(b)(1).

The notice must be substantially similar to a government-provided template called Model Form A-9 and must contain specific items, including: a brief description of the overdraft service; the fees charged; the maximum number of overdraft fees per day (or a statement that there is no limit); the consumer's right to opt in and how to do so; and information about alternative overdraft coverage options. The notice may not contain information beyond what the regulation specifies. 12 C.F.R. § 1005.17(d). EFTA imposes a one-year statute of limitations — meaning claims must be filed within one year of the violation. 15 U.S.C. § 1693m(g).

Key Facts

Wings offered an overdraft protection program called Overdraft Protection Plus. To enroll, members completed Wings' Opt-in Form, which referenced a separate, longer document called the Overdraft Protection Plus Agreement & Disclosure (A&D Form). The Opt-in Form stated that by opting in, the customer consented to Wings paying or authorizing transactions against "non-sufficient funds" and agreed to pay a $30 fee "for each item that we pay that would overdraw your checking account." The form did not define "non-sufficient funds," did not specify whether overdraft determinations were based on the customer's "actual balance" (funds actually in the account) or "available balance" (actual balance minus holds for pending transactions), did not state whether the overdraft determination was made at the time of transaction authorization or later at settlement, and did not identify the maximum number of overdraft fees that could be charged per day.

Gahm alleges she was assessed $30 overdraft fees on one-time debit card and ATM transactions on numerous occasions from March 2017 through December 2023. She filed the original complaint on January 30, 2023.

A key feature of debit card transactions relevant here is that they occur in two steps: (1) "authorization," when the merchant's terminal connects to Wings and Wings places a hold on the customer's available balance, reducing it even though actual funds haven't moved; and (2) "settlement," sometimes days later, when funds are actually transferred. Gahm alleged that customers could be charged overdraft fees even when their actual account balance was positive, because Wings used the available balance — which may be lower due to holds — to determine whether an overdraft occurred.

Ruling on the EFTA and Regulation E Claim

Segregation Requirement

Wings argued that the Opt-in Form and the A&D Form together constituted the required segregated notice and should be evaluated jointly for Regulation E compliance. The court rejected this argument. Regulation E's segregation requirement mandates that the notice be separate from all other information. Reading the A&D Form into the notice would also violate the substantial-similarity requirement because the A&D Form spans three pages (unlike the single-page Model Form A-9) and contains information — such as statements about account termination, credit bureau reporting, and collection costs — beyond what Regulation E permits. The court concluded that the Opt-in Form must be assessed on its own, consistent with decisions from several other federal courts.

Merits of the Regulation E Claim

The court found that Gahm plausibly alleged four deficiencies in Wings' Opt-in Form:

1. Failure to explain the balance method: The Opt-in Form did not define "non-sufficient funds" or clarify whether overdraft fees would be triggered by an insufficient actual balance or available balance. Because the available balance can be lower than the actual balance due to pending transaction holds, customers could be charged fees even when sufficient funds were actually present. The court cited Tims v. LGE Community Credit Union, 935 F.3d 1228 (11th Cir. 2019), among other decisions, in finding this omission stated a Regulation E violation.

2. Failure to specify authorization vs. settlement timing: The Opt-in Form did not state whether overdraft determinations were made at the time of authorization or at settlement. This ambiguity could cause customers to misunderstand when sufficient funds were required. Wings argued that because only authorization allows a decision to be made, this was implicit — but the court held that a customer reading only the Opt-in Form could not reach that conclusion.

3. Failure to state the daily fee limit: Regulation E expressly requires disclosure of the maximum number of overdraft fees that may be charged per day (or a statement that there is no limit). 12 C.F.R. § 1005.17(d)(3). The Opt-in Form contained no such information.

4. Lack of substantial similarity to Model Form A-9: Because the Opt-in Form omitted required content — particularly the daily fee limit — it could not be substantially similar to the model form. The court found the A&D Form could not cure this deficiency and noted the A&D Form would itself likely fail the substantial-similarity standard for independent reasons.

Statute of Limitations

The court addressed a circuit-level split on when EFTA claims accrue. Two approaches emerged from district court decisions:

- The Smith approach (Smith v. Bank of Hawaii, 2018 WL 1662107): Each individual overdraft fee charged without a compliant opt-in form is a separate EFTA violation, restarting the one-year clock each time a fee is charged. - The Domann approach (Domann v. Summit Credit Union, 2018 WL 4374076): The violation is the single act of providing a noncompliant opt-in form, so the limitations period begins with the first overdraft fee charged and does not reset with subsequent fees.

The court adopted the Smith approach, finding it more consistent with the plain text of Regulation E, which specifically prohibits assessing "a fee or charge" without complying with disclosure obligations — language that targets each individual fee assessment. Because Gahm filed her complaint on January 30, 2023, only fees charged on or after January 30, 2022 fall within the one-year window. The court granted the motion to dismiss as to overdraft charges before January 30, 2022, but denied it as to charges on or after that date.

Ruling on the MCFA Claim

Gahm alleged Wings violated the Minnesota Consumer Fraud Act by misrepresenting its overdraft fee assessment practices. Because the claim sounds in fraud, it was subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires a party to "state with particularity the circumstances constituting fraud," i.e., the who, what, where, when, and how.

The court found the MCFA claim adequately pleaded. The Opt-in Form's use of the undefined term "non-sufficient funds," its failure to specify whether the actual or available balance governs, and its silence on authorization-versus-settlement timing — combined with Wings' website language that similarly failed to clarify these distinctions — plausibly alleged that customers could unexpectedly receive overdraft fees even when their accounts contained sufficient funds at the time of purchase. The court also found the A&D Form itself sufficiently ambiguous (using shifting terminology such as "non-sufficient funds," "sufficient collected funds," and then separately defining "actual balance" and "available balance") to support the MCFA claim. Wings' motion to dismiss the MCFA claim was denied.

Disposition

The court granted Wings' motion to dismiss in part and denied it in part:

1. Count 1 (EFTA and Regulation E): Motion granted as to overdraft fees charged before January 30, 2022; motion denied in all other respects. 2. Count 2 (Minnesota Consumer Fraud Act): Motion denied.