A California man says that Target tricks consumers into using a payment method that comes with an unreasonable risk of excessive fees.
Plaintiff James Walters claims that Target deceptively presents its RedCard payment method as an analog to traditional debit cards, when in fact using the card exposes consumers to vastly more expensive penalties and fewer legal protections.
According to the Target class action lawsuit, Target’s RedCard is a house-brand payment method that the retailer offers customers.
Using a RedCard to pay for a Target purchase initiates an electronic transfer of funds from the customer’s associated bank account. In exchange for using the RedCard, Target offers customers a five percent discount on all Target purchases made with the card.
Walters says that Target exploits consumers’ ideas of how debit cards work to get them to use the Target RedCard – which Walters says doesn’t work like traditional debit card at all.
According to the class action lawsuit, Target tells customers that funds for purchases made with a RedCard are immediately and directly withdrawn from the customer’s checking account.
Target also requires customers to pick a unique Personal Identification Number for use with the card. Walters argues that these aspects of the RedCard deceptively encourage customers to think it works like a debit card.
The problem, according to Walters, is that RedCard transactions don’t work like debit card transactions at all. He says that purchases made with a RedCard function are processed over the Automated Clearing House network.
These ACH transactions function more like electronic checks, Walters says. They do not immediately draw funds from the payer’s bank account, causing a delay that he says consumers aren’t expecting.
In addition to the delay inherent in ACH transactions, Walters says Target intentionally delays processing RedCard transactions.
He alleges that to save money on processing fees, Target submits RedCard transactions to the ACH network in massive batches. This batch processing can add several days to the time it takes a single transaction to post to the customer’s account, Walters claims.
This delay increases the chance that a customer’s checking account may become overdrawn by the time the Target transaction posts, Walters says.
Like banks, Target charges its RedCard customers a fee if the transaction is refused. But unlike bank fees, which are regulated by federal law, these Returned Payment Fees are unrestricted.
Walters claims that a single declined RedCard transaction can rack up compounded RPF charges of $100 or more.
In addition to the RPFs, Walters says the customer’s bank may also charge an NSF fee for the declined transaction. Walters adds that while Target’s card agreement warns customers about the possibility of being assessed “overdraft fees,” it makes no mention of the danger of NSF fees.
Walters quotes several customer complaints from Internet forums showing that many who signed-up for and used the RedCard had the mistaken impression – allegedly based on Target’s representations – that the card would work just like a debit card.
Some of these customers say this alleged misrepresentation resulted in their being hit with RPF charges they weren’t expecting.
If certified by the Court, Walters’s proposed Class will include all U.S. consumers who incurred RPF charges by using their Target RedCard within the applicable statute of limitations period.
Read more and follow the lawsuit here.