Excessive Overdraft Fees: You Can Take That to the Bank

Miami, FLIf there’s one thing banks are awfully good at, it’s excessive bank overdraft fees. Banking fees tend to be an endless scourge on the consumer to begin with. However, pundits point to the process of incurring an overdraft and the resulting fees as the ultimate irony: an overdraft occurs when a consumer is short on cash or momentarily down on his financial luck, while the bank is eager to profit from a consumer’s misfortune.

In May, a Florida judge signed off on a settlement associated with a bank overdraft fees lawsuit brought against Capital One Bank NA (Capital One). Various plaintiffs in multidistrict litigation against Capital One agreed to settle for $31.8 million. The various lawsuits alleged that Capital One deducted funds from accounts based on the size of a transaction, rather than in chronological order - a common refrain, as it turns out and a practice, plaintiffs believe was designed to maximize the number of overdraft fees the bank could charge.

There are well above a half-million settlement class members in the litigation. Capital One, while the excessive bank fees lawsuits percolated through the legal pipeline, tried to have the lawsuits dismissed three times. The bank’s hat trick proved futile.

The case is In re: Checking Account Overdraft Litigation, Case No. 1:09-md-02036, in the US District Court for the Southern District of Florida.

Meanwhile, a series of cases against HSBC Bank USA NA (HSBC) are pitting state plaintiffs against federal plaintiffs (In re: HSBC Bank USA NA Debit Card Overdraft Fee Litigation, Case No. 2:13-md-02451, in the US District Court for the Eastern District of New York; and In re: HSBC Bank USA NA Checking Account Overdraft Litigation, Case No. 650562/2011, in the Supreme Court of the State of New York, County of New York).

In this dispute, a settlement worth $30 million at the state level has drawn the ire of federal plaintiffs in a putative federal class action. Federal plaintiffs have asked a judge in New York state court to stay or deny the proposed settlement, which was announced in March. New York Supreme Court Justice Eileen Bransten said at the time that she wouldn’t approve the settlement while related litigation was pending in federal court - only to have US District Judge Arthur D. Spatt infer that HSBC could move forward with the state settlement after all, without having to wait for the outcome of the federal dispute.

While all that gets worked out, the allegations over banking overdraft fees remain unchanged, and plaintiffs at both the federal and state level are in agreement over allegations that HSBC illegally collected overdraft fees by processing debit card transactions from the greatest to the smallest amounts - rather than chronologically.

Three federal class actions against HSBC over excessive bank fees were combined into multidistrict litigation in 2013.

And this kind of stuff is hardly new: in early 2012, a state judge in Hawaii approved a $9 million settlement between Bank of Hawaii Corp. and some 160,000 debit card holders who accused the bank of playing fast and loose with protocol in order to maximize fees. Like the preceding complaints, Bank of Hawaii plaintiffs allege the bank should have posted bank overdraft fees in the order in which they were made - chronological order.

Instead, or so it was alleged, Bank of Hawaii held them and posted the charges from the largest to smallest. As an example, if a customer with a $50 balance made four $10 transactions followed by a $100 transaction, the bank would reorder the debits from largest to smallest, imposing five overdraft fees on the customer, according to the bank overdraft fees lawsuit. Were the charges to have been based on chronological order, there only would have been one overdraft charge - based on the final $100 withdrawal that triggered the overdraft - rather than five overdrafts, each with its own fee.

“In many instances, these overdraft fees cost Bank of Hawaii account holders hundreds of dollars in a matter of days, or even hours, when they may be overdrawn by only a few dollars,” the plaintiffs said.

The case was Taulava v. Bank of Hawaii, Case No. 11-1-0337-02, in the Circuit Court of the First Circuit, State of Hawaii.

With banks, it seems, one can bank on the expectation of being gouged in some way through excessive bank fees.