New York, NYAlthough some banks and financial institutions have settled their overdraft fees lawsuits, more overdraft lawsuits have been filed by consumers alleging banks deceptively reorder transactions to maximize profits. Banks have defended the practice, saying it isn’t illegal. Despite that, some excessive overdraft fees lawsuits have been settled and more continue to be filed.
According to Consumer Affairs (1/8/15), TD Bank is one of the latest banks to face a lawsuit regarding its overdraft practices. Specifically under fire is the practice of reordering transactions from highest to lowest - instead of the order in which they occurred - to push customers into overdraft faster and maximize the amount banks make on overdraft fees.
For example, if a person has $150 in her account and makes three purchases of $10, followed by a purchase of $160, based on chronological order, that person would only pay for one overdraft transaction. With the purchases reordered from highest to lowest, all four transactions would generate an overdraft charge. Considering that some banks charge $35 per overdraft fee, those charges can add up. In the above example, it’s a difference of $35 versus $140.
The lawsuit also alleges lower-income consumers are excessively affected by the practice, claiming 90 percent of overdraft fees are paid by those who can least afford it, with the fees making it more and more difficult for those consumers to get out of overdraft. TD Bank had reportedly settled an earlier overdraft fees lawsuit for $62 million.
Other banks have also settled lawsuits concerning overdraft fees. In 2012, Citizens Bank agreed to pay $137.5 million to settle a class-action lawsuit filed against it, while in 2011, Bank of America reportedly paid $410 million to settle lawsuits concerning its fees. In 2015, Capital One settled a lawsuit for $31.8 million. That lawsuit involved around 611,000 customers and alleged the company used deceptive practices to maximize overdraft fees.
Overdraft fees have been big moneymakers for the banks. A report from SNL Financial (cited by The Wall Street Journal; 5/28/15) notes three of the largest banks in the US - J.P. Morgan Chase, Bank of America, and Wells Fargo - took in a total of $1.14 billion in overdraft fees in the first quarter of 2015. On average, banks charge $30 for overdraft transactions, up from $29 in 2012.
Banks have defended themselves saying the reordering of transactions is not illegal.
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