Gahm v. Wings Financial Credit Union

Background

Plaintiff Debra Gahm brought this putative class action (a lawsuit filed on behalf of herself and similarly situated people) against Wings Financial Credit Union, alleging that Wings violated federal and state law by failing to provide legally adequate disclosures before charging overdraft fees on debit card and ATM transactions. The operative pleading is the Second Amended Complaint (SAC). The case was originally filed in Minnesota state court on January 30, 2023, and was removed to federal court by Wings on May 6, 2025.

Gahm alleges Wings charged her $30 overdraft fees on dozens of occasions between March 2017 and December 2023. She seeks to represent two classes: (1) an 'Opt-In Class' of Wings checking accountholders assessed overdraft fees on debit or ATM transactions from January 30, 2022, to March 31, 2024; and (2) a 'Minnesota Class' of Minnesota citizens assessed overdraft fees on transactions that did not actually overdraw their accounts from January 30, 2017, to the present.

Statutory and Regulatory Framework

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.), govern how financial institutions must obtain customer consent before enrolling them in overdraft protection programs. Under Regulation E, a bank may not charge an overdraft fee on an ATM or one-time debit card transaction unless it first provides the customer with a written notice—segregated from all other information—that describes the overdraft service and meets specific content requirements (12 C.F.R. § 1005.17(b)(1)). The notice must be substantially similar to Model Form A-9, a standardized government template. Required disclosures include: a description of the overdraft service and covered transaction types; the dollar amount of fees; the maximum number of overdraft fees per day (or a statement that there is no limit); the customer's right to consent and how to do so; and alternative overdraft coverage options. The notice may not contain extraneous information beyond what the regulation specifies. The EFTA has a one-year statute of limitations. 15 U.S.C. § 1693m(g).

The Minnesota Consumer Fraud Act (MCFA), Minn. Stat. § 325F.69, subd. 1, prohibits fraud, unfair or unconscionable practices, false promises, misrepresentations, and deceptive practices made in connection with the sale of merchandise, and is to be construed liberally in favor of consumers.

Wings' Overdraft Forms

Wings used two forms relevant to its Overdraft Protection Plus program. The Opt-in Form is the short document customers sign to enroll; it states that by opting in, the customer consents to Wings paying or authorizing transactions against 'non-sufficient funds' and agrees to pay a $30 fee 'for each item that we pay that would overdraw your checking account.' The Agreement and Disclosure (A&D) Form is a longer, separate document that explains the overdraft program in detail, including the distinction between actual and available balances, the maximum of six overdraft fees per day, how authorization holds work for signature debit transactions, and the bank's right to terminate the service. The June 2016 versions of both forms are the ones applicable to Gahm's claims.

Signature Debit Card Transactions and the APSN Issue

The SAC explains that signature debit card transactions (where a customer does not enter a PIN) occur in two steps: authorization, when Wings places a hold on the customer's available balance; and settlement, when funds are actually transferred. Because authorization and settlement can be separated by several days, intervening transactions can cause a customer's available balance to drop between authorization and settlement. This creates so-called 'authorized positive, settle negative' (APSN) transactions—situations where the account had sufficient funds at authorization but not at settlement—resulting in overdraft fees even when the account was not overdrawn at the time the transaction was approved.

Motion to Dismiss Standard

Under Federal Rule of Civil Procedure 12(b)(6), a court accepts all factual allegations as true and asks whether the complaint states a plausible claim for relief. The court draws all reasonable inferences in the plaintiff's favor, but is not bound by legal conclusions dressed up as factual allegations.

Ruling 1: Regulation E's Segregation Requirement

Wings argued that the Opt-in Form and the A&D Form should be evaluated together to assess Regulation E compliance. The court rejected this argument. Regulation E requires the notice to be 'segregated from all other information' and substantially similar to Model Form A-9. The A&D Form does not resemble the single-page Model Form A-9—it spans three pages and contains content Regulation E does not permit (e.g., disclosures about account termination, credit bureau reporting, and collection costs). Evaluating the two documents together would therefore create its own Regulation E violations. The court held, consistent with several other federal courts, that Wings' Opt-in Form must be assessed as a standalone document. The A&D Form is irrelevant to the Regulation E compliance analysis.

Ruling 2: Merits of the Regulation E Claim

The court found Gahm plausibly alleged four distinct deficiencies in the Opt-in Form:

Failure to Specify Balance Method The Opt-in Form does not define 'non-sufficient funds' or explain whether overdraft fees are triggered when the actual balance or the available balance is overdrawn. Because the available balance can be lower than the actual balance due to pending holds, a customer can be charged an overdraft fee even when the account has sufficient actual funds. The court found this omission violates Regulation E's requirement that disclosures be 'clear and readily understandable,' citing the Eleventh Circuit's decision in Tims v. LGE Community Credit Union, 935 F.3d 1228 (11th Cir. 2019), and district court cases from New York and South Carolina.

Failure to Specify Authorization vs. Settlement Timing The Opt-in Form does not state whether Wings decides to charge an overdraft fee at the moment of authorization or at settlement. This ambiguity leaves customers unable to understand when they need sufficient funds in their account to avoid a fee. The court cited decisions from the Eastern District of Virginia finding similar ambiguity sufficient to state a Regulation E claim.

Failure to State Daily Fee Limit Regulation E expressly requires the notice to disclose the maximum number of overdraft fees that may be assessed per day, or state that there is no limit. 12 C.F.R. § 1005.17(d)(3). The Opt-in Form contains no such information. The court found this a clear regulatory violation.

Failure to Be Substantially Similar to Model Form A-9 Because the Opt-in Form omits content required by § 1005.17(d), it is not substantially similar to Model Form A-9. Wings' argument that the A&D Form fills this gap was rejected because the A&D Form is not the segregated notice required by the regulation.

Ruling 3: Statute of Limitations on the EFTA/Regulation E Claim

Wings argued the entire EFTA claim was time-barred because Gahm was first charged an overdraft fee on March 31, 2017, and the one-year limitations period therefore expired on March 31, 2018—nearly five years before she filed suit in January 2023.

The court acknowledged a circuit split among district courts and adopted the approach from Smith v. Bank of Hawaii, No. 16-513, 2018 WL 1662107 (D. Haw. Apr. 5, 2018), rather than the approach from Domann v. Summit Credit Union, No. 18-167, 2018 WL 4374076 (W.D. Wis. Sept. 13, 2018).

Under the Smith approach (also followed in Fludd v. South State Bank and several other district courts), each overdraft fee assessed without a compliant opt-in form is a separate Regulation E violation that starts its own one-year clock. This is because Regulation E's text prohibits assessing 'a fee or charge' without proper disclosure—every fee charged is an independent act prohibited by the regulation, not merely a downstream consequence of a single deficient form.

Under the Domann approach (advocated by Wings), the violation occurs only once—when the deficient opt-in form is first used—and all subsequent overdraft fees are simply consequences of that single omission. The one-year clock would therefore run from the first overdraft fee charged.

The court found Smith's reading more consistent with the plain text of 12 C.F.R. § 1005.17(b)(1). Because Gahm filed on January 30, 2023, the limitations window extends back to January 30, 2022. Overdraft fees charged before January 30, 2022 are time-barred; those charged on or after January 30, 2022 are not. The court granted the motion to dismiss Count 1 only as to pre-January 30, 2022 charges, and denied it for charges on or after that date.

Ruling 4: Minnesota Consumer Fraud Act Claim

Because the MCFA claim sounds in fraud, Gahm was required to plead it with particularity under Federal Rule of Civil Procedure 9(b)—that is, she had to identify the 'who, what, where, when, and how' of the alleged fraud.

The court found Gahm satisfied this standard. The SAC alleges Wings misrepresented its fee practices through the Opt-in Form's failure to define 'non-sufficient funds' or clarify whether the actual or available balance triggers fees; through the website's description of Overdraft Protection Plus using the ambiguous term 'current balance' without defining it; and through the A&D Form's use of shifting terminology ('non-sufficient funds,' then 'sufficient collected funds') that creates confusion about when overdraft fees will be assessed. Taken together, these allegations plausibly allege that a customer could be charged an overdraft fee even when the account held sufficient funds, based on misleading disclosures. The court denied the motion to dismiss Count 2.

Disposition

Wings' motion to dismiss was granted in part and denied in part: - Count 1 (EFTA/Regulation E): Dismissed with prejudice as to overdraft fees charged before January 30, 2022; allowed to proceed as to fees charged on or after January 30, 2022. - Count 2 (MCFA): Motion denied; claim proceeds in full.