Kansas Supreme Court unanimously rejects bank’s overdraft fee policy as ‘ambiguous’

Kansas Supreme Court Justice Caleb Stegall, right, authored the high court's unanimous opinion rejecting arguments by Capitol Federal Savings Bank, headquartered in Topeka, that plaintiffs shouldn't be allowed to pursue a lawsuit claiming the bank's customer contract didn't clearly outline rules on overdraft fees. The Supreme Court affirmed a decision by the Kansas Court Appeals against Capitol Federal, which sends the case back to Shawnee County District Court. In this image from Jan. 15, 2025, Stegall is with Supreme Court Justice Dan Biles. (Photo by Sherman Smith/Kansas Reflector)

TOPEKA — The Kansas Supreme Court unanimously affirmed reversal of a district court judge who dismissed legal challenges to a Kansas bank’s policy on assessing overdraft fees.

The Supreme Court sent the case back to Shawnee County District Court, where Judge Merlin Wheeler had dismissed claims of plaintiffs alleging Capitol Federal Savings Bank’s practice of applying overdraft penalties on checking accounts was flawed.

One plaintiff claimed a breach of contract when Topeka-headquartered Capitol Federal charged multiple overdraft fees for repeated attempts to process a single payment that was returned for insufficient funds. Another plaintiff alleged the bank violated its contract by charging multiple fees on transactions that wouldn’t have initially overdrawn the account, but were later processed when the account was deficient.

Wheeler granted in October 2024 the bank’s motion to dismiss the plaintiffs’ petition after concluding overdraft provisions of the contract with customers mandated each report “errors or improper charges” within 30 days of receiving an account statement.

The judge said plaintiffs Jennifer Harding and Samantha Ramirez failed to comply with the bank’s “very clear notice provision” regarding challenges of fees and both were prohibited from proceeding with claims.

The Kansas Court of Appeals reversed the district court after concluding Capitol Federal’s use of the term “improper charges” in its contract wasn’t “inherently clear” to consumers. Capitol Federal, which serves clients in Missouri and Kansas, appealed to the Supreme Court.

Supreme Court Justice Caleb Stegall, appointed in 2014 by Gov. Sam Brownback, wrote the unanimous opinion affirming the Court of Appeals’ view that ambiguity in Capitol Federal’s contract meant the 30-day notice provision couldn’t be applied to the bank’s overdraft fees.

“We agree with the Court of Appeals that the contractual term ‘improper charges’ is ambiguous,” Stegall wrote in the opinion. “When a court properly finds a contract to be ambiguous, the court must construe that ambiguity against the drafter. Our task, at this point, becomes simple. The ambiguity inherent in the contested phrase ‘improper charges’ must be construed against Capitol Federal to exclude the fees the bank itself imposes upon its own customers.”

The case was remanded by the Supreme Court back to district court for further proceedings. The plaintiffs have sought to represent a class action against the bank.

Harding’s lawyers filed suit in 2022 asserting Capitol Federal assessed a overdraft fee for a purchase that was authorized when she had a positive balance in her checking account. The conflict arose when a subsequent, unrelated transaction that further lowered her account balance pushed the balance into overdraft status. When the original electronic transaction was presented for settlement, the transaction was declared an overdraft and the fee charged.

Harding claimed this sequence was a violation of the bank’s customer agreement to charge a $32 overdraft fee on the original transaction.

Ramirez’ counsel alleged Capitol Federal broke the account agreement by charging a fee each time AT&T attempted to collect on a $164.87 bill. She alleged nothing in the customer agreement gave Capitol Federal authority to assess the $32 overdraft fee three separate times on a single debit card item.

Here is the key portion of Capitol Federal’s contract with customers that became a focus of the court case: “If your account statement contains any errors or improper charges, you agree to notify us of any such errors or improper charges within 30 days of the date on which we mailed or otherwise made the affected statement available to you. If you do not notify us within that time, you are barred from bringing any action against us that is in any way related to the errors or improper charges.”

Kersten Holzhueter, a Kansas City, Missouri, attorney who represented Capitol Federal in oral arguments last month before the Supreme Court, said the challenged fee structure was permitted by language contained in the contract with customers. She said the 30-day limit on challenges of fees was reasonable.

“Having a bank account comes with obligations on the bank, but it also has responsibility for the account holder,” she told Supreme Court justices. “This includes an obligation to notify Capitol Federal of certain disputes.”

However, the Supreme Court decided the bank’s notice provision didn’t clearly say “improper charges” included “bank fees.”

“The context within the notice provision itself is actually focused on forgeries and alterations and is clearly concerned with fraudulent activity on a customer’s account,” Stegall wrote in the opinion. “That is, it is talking about a disputed ‘charge’ made by a third party against the balance in a customer’s account. It is confusing at best to conflate this with a ‘charge’ made by the bank against the customer for services rendered” such as covering an overdraft.