Bank of America Breached Customer Contracts, Charging Overdraft Fees on Non-Recurring Transactions

New York, NY Cockrom v. Bank of America alleges that Bank of America (BofA) charged overdraft fees on everyday one-time purchases, like a cup of coffee or a tank of gas, even when its deposit agreements promised that overdraft fees would be levied only on recurring transactions, such as a mortgage payments. This is a new twist on bank overdraft fee lawsuits, but it’s a relatively simple scheme. There is nothing about the difference between “available balance” and “actual balance;” there are no delayed deposits and no selective check clearing. It’s a straightforward New York law breach of contract lawsuit.

The shocking part of the story is that BofA apparently never took even the most rudimentary steps to keep the promise about which it bragged in The New York Times. 

WHAT HAPPENED TO DU’BOIS COCKROM AND HUNDREDS OF THOUSANDS OTHERS

In early 2010, BofA announced that it would cease charging personal deposit account holders $35.00 overdraft fees triggered by nonrecurring debit card transactions. The bank explained that only recurring debit card transactions – purchases set up in advance to occur automatically at predetermined  times – would be authorized into negative balances and subject to overdraft fees. Non-recurring purchases, like that cup of coffee, would simply be declined if they would push the account into negative territory. Embarassing? Yes, of course, but not expensive.

On June 18, 2010, BofA’s new policy was incorporated into the Deposit Agreement and Schedule of Fees that govern the bank’s relationship with all of its personal deposit account holders nationwide. The complaint estimates that hundreds of thousands, if not millions, of customers were affected across the country.

At the time, BofA told The New York Times that its new overdraft-fee policy was “all about establishing trust” with its customers, many of whom “kept telling us, ‘do not let me spend money I don't have." BofA announced that its account holders would never again pay $40 for a Starbucks latte.

During the nine year period in question, however, Mr. Cockrom suffered dozens of $40 cups of latte at Starbucks, attributable to the dozens of $35.00 overdraft paid to BofA. The bank clearly did not implement its heralded trust-building change. Overdraft fees on everyday expenses are most harmful to low-income, low-balance customers who can ill afford them.

It did not implement the policy because it couldn’t. It never made the technological changes that would enable it to distinguish between recurring and non-recurring transactions. Furthermore, according to the complaint, the bank knew as long as a year before announcing the policy that it would be unable to keep its promise. It was a sham from the start.

EMPTY PROMISE

According to the complaint, Mr. Cockrom was informed that BofA took no measures prior to announcing the change in policy to:

• deploy the technology necessary to properly distinguish between non-recurring and recurring debit card transactions;
• program its systems not to charge $35 fees as a result of overdrafts triggered by debit card transactions with merchants whose transactions were known to be non-recurring within the meaning of the Deposit Agreement (such as Lyft, Uber, and Starbucks and others); or
• to the extent BofA was unwilling to take either of these two steps, to disclose to its accountholders that it relied entirely on merchant classifications of transactions in deeming debit card transactions to be recurring within the meaning of the Deposit Agreement, even if they were not.

Between June 18, 2010, the date the change was to have been effective, and April 6, 2017, the fee-generation scheme at BofA just kept spinning along.

WHY THIS, WHY NOW?

Fees, including overdraft fees, have become an increasingly important source of revenue for financial institutions like BofA. During the last several years, however, customers have sued numerous banks and credit unions for using shady accounting and processing tactics likely to trigger these overdraft fees. Some of the lawsuits and the settlements they produced were quite costly for banks like Wells Fargo and TD Bank. BofA, itself, was ordered to pay $66.6 million to end an excessive overdraft fee lawsuit -- hence, presumably, the need for a trust-building initiative.

Whether these lawsuits have had a measurable effect on bank revenues is hard to tell. It would be understandable however, that banks and credit unions might go searching for another way to collect overdraft fee revenue.

Cockrom was filed only at the beginning of January, so the story has yet to play out in full. Checking account customers should, however, be alert for similar overdraft promises that distinguish between recurring and non-recurring transactions at their own banks. These may be similarly empty.