Bank and financing fees are a prime target for alleged violations of N.C. Gen. Stat. § 75-1.1. Indeed, one of the seminal cases on section 75-1.1 concerns fees charged in a refinance transaction.

Of course, the fact that a bank, lender, or any other financing company charges a fee is not inherently unfair or deceptive. A consumer who accuses a bank of a 75-1.1 violation based on a fee needs to show why the fee was unfair or deceptive. The “why” inquiry is likely to require a careful study of any agreement that concerns the fee.

A recent decision from the North Carolina Court of Appeals, Gay v. Peoples Bank, underscores this point. This post reviews the Gay decision.

One Checking Account, Six Agreements

The case concerned multiple overdraft charges that Peoples Bank charged a customer named Joseph Lee Gay.

Gay opened a checking account with the bank in July 2008. To open that one account, Gay had to sign six separate agreements. A central question in his lawsuit was whether the bank violated those agreements.

Gay first argued that the bank breached one of the agreements—an agreement about electronic fund transfers—by reordering the sequence of certain electronic debit transactions over multiple days. That reordering, he contended, led to an overdraft charge. Gay argued that the agreement about electronic fund transfers required the bank to process debit transactions in chronological order.

Second, Gay argued that the bank breached two other agreements—one called an addendum, and the other called “the No Bounce Advantage” agreement—when the bank posted electronic debits to his account in order of size, from high to low. That is, the bank paid the largest debits first. According to Gay, the agreements allowed the bank to post only negotiable instruments, and not electronic debits, from high to low.

Finally, Gay alleged that the bank charged improper overdraft fees on an account with a positive balance. Those fees, he contended, violated the bank’s agreements.

Based on these allegations, Gay asserted five different claims, including a 75-1.1 claim. He asserted the claims on behalf of a putative class.

The case made its way to the Honorable Louis A. Bledsoe, III, of the North Carolina Business Court. Judge Bledsoe ultimately entered summary judgment in the bank’s favor.

Gay appealed that decision. Because the case was filed before October 1, 2014, the appeal was resolved by the North Carolina Court of Appeals, not by the North Carolina Supreme Court.

Finding Finality in the Fine Print

The Court of Appeals affirmed Judge Bledsoe’s order. In doing so, the court closely reviewed the agreements on the allegedly problematic fees.

The Court of Appeals first addressed Gay’s arguments about the sequencing of electronic debit transactions. The court stated that the agreement did not say that electronic payments would be posted instantaneously. Instead, the agreement said only that a transaction would be treated as an immediate withdrawal.

The provision’s purpose, the court explained, was to give customers notice of what their account balances would be after transactions. The provision did not signal that transactions would be posted instantaneously. Because the agreement did not contain any affirmative statements about a posting sequence, the court rejected Gay’s argument that the bank wrongly imposed an overdraft charge.

The Court of Appeals next addressed Gay’s argument that certain agreements called for the bank to post negotiable instruments, but not electronic debits, from high to low.

One of the two agreements at issue called for the bank to pay “items” drawn on an account from largest to smallest. The second agreement said that the bank generally pays electronic transactions, then checks beginning with the highest dollar amount. According to the Court of Appeals, these agreements, read together, unambiguously show that the bank could post all transactions—including checks, ATM withdrawals, and debit-card payments—in high-to-low order.

Lastly, the Court of Appeals rejected Gay’s argument that issues of fact remained on whether the bank charged overdraft fees on accounts with positive balances.

Gay argued that the bank wrongfully charged an overdraft fee on a positive account on August 21, 2008, but Gay never produced a notice of insufficient funds from that date. Gay made the same argument about an overdraft fee on his January 9, 2012, account statement, but Gay’s evidence showed that the bank processed that fee on the day after Gay overdrew the account. Gay’s own evidence therefore defeated his claim.

The Fine Print Is Not Unfair

Having concluded that the bank agreements did not support Gay’s claims, the Court of Appeals turned to a different, but related question: Could the bank’s alleged conduct, including its imposition of fees, nonetheless violate section 75-1.1?

Unsurprisingly, the court said no. The court’s reasoning, however, merits study.

The Court of Appeals emphasized that the plain language of the account agreements put Gay on notice of the bank’s policies, and that the bank’s actions were consistent with those policies. In relying on the absence of a contract breach, the Court of Appeals appears to have understood Gay’s 75-1.1 claim as a “substantial aggravating circumstances” claim. The court did not reach the question whether this case involved aggravating circumstances, because Gay didn’t show a contract breach by the bank in the first place.

Gay also argued that even if the agreements fully disclosed the bank’s conduct, that conduct was nonetheless unfair and/or deceptive in violation of section 75-1.1. He pointed out that other courts around the country have found similar overdraft practices to be unfair or deceptive. When he made this broad argument, Gay did not point to any specific type of 75-1.1 violation.

The Court of Appeals could have deflected this argument by showing that Gay’s 75-1.1 claim was, at most, a substantial-aggravating-circumstances claim, and that the theory failed because Gay did not prove a contract breach.

Instead, the Court of Appeals took a different approach. The court pointed out that, unlike the plaintiffs in the cases that Gay cited from other jurisdictions, Gay could not prove any claim outside section 75-1.1. That fact, the court concluded, meant that Gay could not make out a 75-1.1 claim.

In this reasoning, the Court of Appeals interpreted Gay’s 75-1.1 claim as alleging a per se violation, rather than a direct-unfairness claim. A per se claim converts a violation of another conduct standard into a violation of section 75-1.1. A direct-unfairness claim, in contrast, asks—on a stand-alone basis—whether alleged conduct was unfair.

Here, even if Gay had expressly invoked a direct-unfairness theory, he would have faced a different argument: his claims are probably really deception claims, given that they’re about statements that the bank made to Gay. A deception claim requires actual and reasonable reliance. Those elements are hard to prove. Indeed, the conclusions of the Court of Appeals about the plain language of the agreements would make it especially hard for Gay to prove these elements.

What’s the takeaway, then?

Plaintiffs who want their claims analyzed as direct-unfairness claims would be wise to say clearly that they’re alleging a direct-unfairness claim. If they don’t, their claims might well be analyzed under other—perhaps unfavorable—standards.

This takes us back to where we started. Banking fees might be natural targets for 75-1.1 claims, but crafting a successful claim based on those fees requires a detailed review of the relevant contracts and a well-defined theory of liability.

Author: Stephen Feldman