Big Banks Don’t appear to be Getting the Message over Excessive Banking Fees

Manhattan, NYWhen the 2nd US Circuit Court of Appeals returned an excessive bank overdraft fees lawsuit to the originating lower US District Court for the District of Manhattan for further proceedings – thus reviving the proposed class action lawsuit – the defendant in the case was told its overdraft fee rules were ambiguous, amongst other rulings that put the plaintiffs and those similarly affected back into the drivers’ seat.

It should have been little surprise to the defendant – Capital One Financial Corp. – given that banks, trust companies and credit unions have been made to compensate their customers for unfair and unlawful overdraft fees in the past.

This is far from a new problem

For example, in 2012 Bank of the West agreed to pay $18 million in settlement dollars to resolve claims that the bank played fast and loose with debit card transactions in an effort to extract higher overdraft fees (In re: Checking Account Overdraft Litigation, Case No. 1:09-md-02036, in the US District Court for the Southern District of Florida).

Excessive bank overdraft fees that are viewed as unfair and based upon greed is hardly a new problem, and wasn’t in 2012 – as Bank of the West was just the latest financial institution called to the carpet over excessive bank fees.

Six years later, it still appears to be an issue.

Plaintiff Tawanna Roberts launched a proposed class action lawsuit against her bank – Capital One – over allegations that Capital One illegally helped themselves to excessive overdraft fees in association with customer accounts that duly had sufficient funds to cover debits. However, Capital One stands accused of re-ordering transactions in an effort to generate additional overdrafts, resulting in higher fees.

The stakes are high, and seemingly lucrative. According to Reuters (12/01/17), the Consumer Financial Protection Bureau has said that overdraft and bounced check fees totaled about $15 billion in the US for the calendar year of 2016.

According to an account of the lawsuit in Reuters, Capital One told customers it had sole discretion to “elect to pay checks and other items drawn on your deposit account or to permit automatic bill payments and withdrawals against your account for an amount in excess of your available balance (an ‘Overdraft’).”

However, the plaintiff asserts that Capital One used this discretion unfairly, and illegally in order to generate additional fees.

Getting ‘the order right’ is key to alleged greed

Various pundits have illustrated how, and why this happens – and Reuters last December contributed its own illustration of the issue. “If a customer with $100 in her account made five $10 purchases and then made a $100 purchase, she would face only one overdraft fee if the transactions were settled in order.”

In other words, the $100 purchase – made last – would have duly (and fairly) put the account into overdraft, and thus the bank would be justified in charging a $35 overdraft fee.

However, that single fee would morph into five fees if the $100 purchase were settled first. That would place the account at zero. Then, were the five $10 debits to be dealt with after the fact, the account would be in arrears to the tune of $50. But due to the fact that each $10 transaction – when debited – put the account further into arrears, each transaction would itself generate a new overdraft and thus be subjected to a $35 overdraft fee.

Multiply $35 by 5 and you have a cost to the consumer of $175.00 v. $35 if the transactions were debited in the order by which the purchases occurred.

To be fair, Capital One is not the only player accused of this. There are - and have been - several others. Plaintiffs in the Bank of the West lawsuit, referenced above, accused the defendant of manipulation of the sequence in which debit card transactions were posted, resulting in a more rapid reduction of account funds and thus, a greater number of overdraft fees than the series of overdrafts would otherwise generate on their own.

The Bank of the West lawsuit was first filed in December, 2010.

The revived class action banking overdraft fees lawsuit against Capital One is Roberts v. Capital One NA, Case No. 17-176, in the 22nd US Circuit Court of Appeals.