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Margolis v. Sandy Spring Bank

Court of Special Appeals of Maryland

February 26, 2015


Page 785

For Appellant: Thomas G. O'Brien, Stephen J. Fearon, Jr., Squitieri & Fearon, LLP, New York, NY; Daniel S. Katz, Tydings & Rosenberg, LLP, Baltimore, MD, all on the brief.

For Appellee: Donald A. Rea, Joey Tsu-Yi Chen, Saul Ewing, LLP on the brief, Baltimore, MD.

Kehoe, Arthur, Eyler, James R., (Retired, Specially Assigned), JJ.


Page 786

[221 Md.App. 707] Arthur, J.

When a bank processes a customer's ATM and debit-card transactions, it can proceed in at least two different ways. It can process the transactions in chronological order, by which it debits the amount of the first transaction first and the last transaction last. Or. it can engage in what is called " batch-processing," by which it organizes the transactions by dollar amount and then debits the largest transactions first and the smallest transactions last. By engaging in batch-processing [221 Md.App. 708] and processing the largest transactions first, the bank increases the likelihood of overdrafts -- and of overdraft fees.

Page 787

In this case, Daniel J. Margolis, as the representative of a putative class, brought a Consumer Protection Act challenge to Sandy Spring Bank's practice of batch-processing debit-card transactions (a.k.a. " point-of-sale" or " POS" transactions) and ATM transactions. The Circuit Court for Montgomery County dismissed his complaint for failure to state a claim upon which relief can be granted.

Questions Presented

Margolis presents two questions for our review, which we have consolidated and rephrased as follows: did the trial court err by granting Sandy Spring's motion to dismiss?[1] For the reasons that follow, we answer in the negative and affirm the judgment of the circuit court.

A. The Complaint

Margolis maintained a checking account with Sandy Spring. The account had overdraft protection, under which the bank would pay for a transaction despite an overdraft of available funds, but would charge a fee of $37.00.

Margolis claimed that he incurred overdraft fees because the bank reordered ATM and debit-card transactions in his account, debiting the largest transactions first. On June 20, 2013, he filed suit against Sandy Spring, claiming that the bank had committed unfair and deceptive trade practices in violation of Maryland's Consumer Protection Act (" CPA" ), [221 Md.App. 709] Code (1975, 2013 Repl. Vol.), Commercial Law Article (" CL" ), § 13-301.[2]

The complaint alleged that the bank reorders transactions at the end of each business day, deducting the largest debits or withdrawals first and continuing thereafter from largest to smallest in descending order. The complaint specifically alleged that Sandy Spring manipulated the order of transactions to increase overdraft fees -- and the resulting profits.

By way of example, suppose a Sandy Spring customer's account contained $100.00, and the customer used her debit card for a $10.00 transaction, followed by a $20.00 transaction, and finally a $90.00 transaction. If Sandy Spring processed the transactions in chronological order, the customer would overdraw her account only when she made the final $90.00 debit, and the bank would charge only a single overdraft fee. However, when the bank batch-processes these same transactions and reorders them from largest to smallest, the bank first deducts $90.00, then $20.00, and lastly $10.00. Under batch-processing, therefore, the account becomes overdrawn at the second transaction, for $20, and the customer incurs two overdraft fees.

Page 788

In his complaint, Margolis principally alleged that the bank violated the CPA because its Deposit Account Agreement did not disclose, or did not adequately disclose, the practice of batch-processing transactions by reordering them from largest to smallest. He also alleged that the bank did not adequately inform its customers of their ability to opt out of overdraft-protection services, under which the bank pays a transaction despite an overdraft, but charges an overdraft fee. At various points, he also alleged that the bank processes debits before credits. Finally, he alleged that the bank did not adequately identify overdraft fees.

[221 Md.App. 710] Margolis invoked three provisions of the CPA: section 13-301(2)(i), concerning representations that " consumer services have a sponsorship, approval, accessory, characteristic, ingredient, use, benefit, or quantity which they do not have" ; section 13-301(3), concerning the " [f]ailure to state a material fact if the failure deceives or tends to deceive" ; and section 13-301(9)(i), concerning " [d]eception, fraud, false pretense, false premise, misrepresentation, or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same in connection with . . . [t]he promotion or sale of any . . . consumer service." [3]

B. The Deposit Account Agreement

The bank's Deposit Account Agreement contains a number of provisions that bear on the adequacy of its disclosures.[4]

On the subject of overdrafts, the section captioned " Fees for Checks and Other Items or Incoming Collections" lists the fees that the bank may charge in case of overdrafts:

Overdraft, NSF Return or Unavailable Funds (UAF) Overdraft Item: a withdrawal or an order presented for payment that would overdraw an account or is drawn against unavailable funds (fee not applicable to commercial checking UAF items that are paid or returned) $35 per withdrawal or order paid or returned. . . . The types of withdrawals or Orders subject to an overdraft, NSF [221 Md.App. 711] Return or UAF fee include negotiable orders of withdrawal, checks, substitute checks, electronified checks, " counter/in-person" withdrawals, drafts, ATM withdrawals, point of sale purchases . . . .

In addition, paragraph 2 of the General Rules of the Deposit Account Agreement states:

We reserve the right at our discretion to pay or refuse to pay any Order executed by you if the balance in the Account is insufficient or uncollected. In either case, we will charge you a fee for each of such Orders to your Account . . . . You may not be notified prior to our payment of any Order that may result in an overdraft . . . .

On the crucial subject of batch-processing, the Deposit Account Agreement had this to say:

Page 789

We may accept, pay or charge to your Account your Orders in any order we choose even if (a) paying a particular Order results in an insufficient balance in your Account to pay one or more other Orders that otherwise could have been paid out of your Account; or (b) using a particular order results in the payment of fewer Orders or the imposition of additional fees. In general, we currently process your Orders, including but not limited to ATM and POS transactions and community office withdrawals, at the end of each business day in high to low dollar amount. If there are insufficient funds to cover all of your Orders processed on any given day, this method may result in additional overdraft fees. We may establish different processing priorities or categories for some Orders (i.e., wire transfer requests, automatic loan payments or automatic transfers). We reserve the right to change our policy at any time without notice to you.

Finally, the Overdraft Disclosure and Confirmation Notice, which is incorporated into the Deposit Account Agreement, states:

At any time if you decide that you no longer want to have our standard overdraft services for ATM and one-time debit card ...

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