Class action lawsuits serve two main purposes: to bring about compensation for a large group of individuals who have been similarly harmed by the actions of another party; and to bring an end to those actions so that other people aren’t similarly harmed in the future. These cases can involve numerous types of conduct by defendants ranging from negligence to product liability to consumer protection and unfair business practices.
Recent class action lawsuits against large banks related to their transaction posting and overdraft fee charges perfectly illustrate these dual benefits in the context of consumer protection and unfair business practices.
Fees charged to customers by their bank when an account is overdrawn are not illegal. However, it has been alleged that many banks made a practice of manipulating how charges are allocated to customers’ accounts to unfairly increase overdraft fees. Specifically, these banks process transactions starting with the largest-dollar-amount transaction and ending with the transaction with the smallest dollar amount, rather than processing all transactions in chronological order. This is done without fully or accurately disclosing these practices to customers. This type of processing makes customer account balances fall faster than they should, which increases the number of fees that occur when an account is overdrawn and increases the banks’ revenue.
Bank Overdraft Class Action Lawsuit Settlements
Gray, Ritter & Graham has successfully pursued a number of class actions related to overdraft fees. Last year, Gray, Ritter & Graham was involved in obtaining a $7.8 million settlement with a Missouri bank on behalf of customers who were unfairly and deceptively charged overdraft fees on their debit card transactions. The firm was also involved in a $2.7 million settlement of similar claims against a Kansas bank this year and a $19 million settlement of similar claims against an Oklahoma bank that is currently awaiting final court approval.
Numerous other cases have been filed against banks all across the country regarding similar claims, many of which have been consolidated in federal court proceeding in Miami. As of today, at least 14 banks have agreed to multi-million dollar settlements related to improper posting practices that increased customers’ overdraft, including a number of the country’s largest banks:
- Bank of America: $410 million
- Citizens Bank: $137 million
- Chase: $110 million
- PNC: $90 million
- US Bancorp: $55 million
These class actions have resulted in refunds for improperly charged overdraft fees to thousands of customers. They have also had a positive impact on industry practices. For example, in addition to the financial settlement, Chase earlier this month said it will stop charging overdraft fees, which typically range from $25 to $35, for transactions of less than $5. And they’ve agreed to process most customer transactions in chronological order. Other banks around the country have also altered their overdraft fee policies to be more customer friendly.
Federal Investigation into Bank Overdraft Fees
While the bank overdraft fee class action lawsuits have brought about compensation to aggrieved customers, they have also brought the banks’ unfair actions out of the shadows and into much wider public scrutiny. In February, the Consumer Financial Protection Bureau (CFPB) announced an investigation into the checking account overdraft programs of several major banks.
The investigation is looking at four main areas:
- Transaction Re-ordering: This is the practice of processing a customer’s largest transactions, including bill payments, ATM withdrawals, debit card transactions, and check processing, in order of the largest amounts rather than in chronological order. This practice can unfairly increase the number of overdraft frees incurred if an account is overdrawn.
- Misleading Marketing Materials: The CFPB is examining whether some banks use misleading marketing materials in describing their overdraft fees.
- Confusing Customer Communications: Another part of the investigation includes determining how difficult banks are making it for customers to understand overdraft fee terms and how they can avoid them.
- Unfair Impact on Low-Income and Young Bank Customers: There is a question as to whether low-income and younger bank customers unfairly incur overdraft fees more often than other customer groups.
With banks being held accountable for their unfair tactics, which led to increased government oversight and perhaps additional customer protections, recent class action lawsuits have demonstrated their value for consumers.