Lawsuit: Iowa’s biggest credit union is charging improper fees

nterior of an empty courtroom with gavel and sounding block on the desk.
Courtroom and gavel (Photo by Getty Images)

Iowa’s largest credit union is facing a potential class-action lawsuit alleging it has collected millions of dollars in improper overdraft fees.

The lawsuit, filed in Johnson County District Court, seeks class-action status and unspecified damages from GreenState Credit Union, which has more than $5 billion in assets and branches throughout Iowa.

The credit union has yet to file a response to the lawsuit, and officials there did not respond Monday to a request for comment.

According to the lawsuit, GreenState follows the normal practice of deducting money from a customer’s account the instant a debit card is used for a purchase. The money deducted from that account is immediately set aside, or placed on hold, to be used as payment for that purchase.

However, the lawsuit alleges, GreenState charges its customers an overdraft fee for debit-card purchases when subsequent withdrawals, made days later, push the account into a negative balance. The fee is imposed, the lawsuit claims, even though the account had a sufficient balance at the time the debit card was used and even though GreenState instantly put a hold on funds to pay for the purchase.

“There is no justification for these practices other than to maximize GreenState’s overdraft-fee revenue,” the lawsuit alleges, noting that the credit union properly collects millions of dollars each year by charging overdraft fees — typically about $32 each — on transactions involving accounts that are genuinely overdrawn.

“But GreenState was not content with those millions in overdraft fees,” the lawsuit states. “It sought millions more in overdraft fees on these (debit-card) transactions.”

According to the lawsuit, such fees are not allowed under the terms of GreenState’s contract with its customers. The alleged fees are also considered by the federal Consumer Financial Protection Bureau to be unfair and deceptive, the lawsuit claims.

The overdraft fees are imposed as part of what the lawsuit describes as a secret process of reversing certain transactions in customers’ accounts: “At the moment a debit-card transaction is getting ready to settle, GreenState does something new and unexpected during the middle of the night, during its nightly batch-posting process.

“Specifically, GreenState releases the hold placed on the funds for the transaction for a split second, putting money back into the account, and then it re-debits the same transaction moments later. This secret step allows it to charge overdraft fees on transactions that never should have been subject to them,” the lawsuit alleges.

The lawsuit was filed by the Duff Law Firm of West Des Moines, and names one GreenState customer, Catherine Razavi, as plaintiff. It seeks class-action status to move forward on behalf of Razavi and “thousands” of other Green State account holders.

On its web site, GreenState describes itself as “Iowa’s No. 1 auto lender.” When measured by assets, it is the largest credit union in Iowa. The credit union with the most members in Iowa is Veridian Credit Union.

Clark Kauffman
Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.