Overdraft Fees
Gardner v. Flagstar Bank
Date: June 20, 2025
Issue: Did Flagstar violate Regulation E and breach its account agreement by unlawfully charging overdraft fees?
Case Summary: In a 3-0 decision, a Sixth Circuit panel reversed a district court decision in a lawsuit alleging that Flagstar unlawfully charged its customers overdraft fees.
Veronica Gardner and her co-plaintiffs (plaintiffs) alleged that Flagstar breached its account agreement (the agreement) by charging $36 overdraft fees on accounts that held sufficient funds. According to plaintiffs, the agreement only allowed such fees when transactions were authorized against insufficient balances. As a result, plaintiffs sued Flagstar for unlawful “fee maximization” practices, including claims for breach of contract, breach of good faith, and unlawful conversion under Michigan law.
In 2021, Judge Gershwin Drain of the Eastern District of Michigan denied Flagstar’s motion to dismiss, finding that plaintiffs could reasonably interpret the agreement to prohibit overdraft fees on transactions made with a positive balance. On April 16, 2024, the court granted summary judgment to Flagstar.
On appeal, the Sixth Circuit reversed, finding that a rational factfinder could reasonably conclude Flagstar breached its terms and conditions. The panel found the agreement ambiguous on whether Flagstar could charge overdraft fees for APSN (authorize positive, settle negative) transactions. Because the contract’s meaning depends on unresolved questions about the parties’ intent, the panel chose to remand the issue to the district court for further fact-finding rather than decide it on appeal.
The panel also rejected Flagstar’s argument that the agreement clearly authorized re-presentment fees. The agreement’s terms and conditions provided that nonsufficient funds fees may apply when a depositor’s available balance is insufficient “to pay an item.” The panel found the definition of “Item” ambiguous, as it could reasonably refer either to each payment attempt or to the original transaction as a whole. The panel also pointed out that treating each re-presentment as a separate “Item” would make parts of the contract redundant — an outcome Michigan law seeks to avoid.
Finally, the panel emphasized that, because it found the terms and conditions ambiguous and potentially breached by Flagstar, plaintiffs may argue that the bank violated the implied covenant of good faith and fair dealing.
Bottom Line: The district court will determine whether Flagstar violated Regulation E and breached its contract with its customers by unlawfully charging overdraft fees.
Document: Opinion
