Attorney: Excessive Overdraft Fees “Not the Fault of the Customer”

New York, NYCustomers who have paid excessive bank overdraft fees may not realize right away that their transactions have been reordered. In fact, many customers may not realize they are paying excessive bank fees until they hear about their bank reordering transactions for other customers. Stephen Fearon, attorney at Squitieri & Fearon in New York, says lawsuits are being filed against banks that allegedly reordered customer transactions to generate profit without telling customers they would do so.

“We’re pursuing a number of class-action lawsuits on behalf of customers of banks throughout the country who have been charged more overdraft fees than they should have because of the way banks process the transactions,” Fearon says.

The issue for bank customers is in the way banks process transactions and how that compares with the way they say they will process transactions. In some situations, banks tell customers all transactions will be processed chronologically, meaning in the order they occur, when they actually process the transactions based on the highest amount to the lowest, increasing the amount of fees the bank can charge.

Say a customer has $20 in her account and makes purchases in order of $5, $7, $2, $3, and $10, for a total of $27. In chronological order, only the final purchase would push the customer into overdraft, resulting in one overdraft charge. But, taken in order of largest to smallest, the transactions would be processed as $10, $7, $5, $3 and $2. The third, fourth and fifth transactions could each result in overdraft charges.

“Banks started doing this after some consultants showed them how to,” Fearon says. “The banks entered into agreement with a consultant where they pay the consultant an upfront fee to show the bank how to do this. They also pay the consultant a success fee based on the additional overdraft fees the bank generates for their reporting periods. The banks tell the consultant how much extra profit they generated and then pay a percentage back to the consultant.”

Overdraft fees can mean big money for banks. Some overdraft fees run as high as $35 per transaction, meaning in the example above, with the reordered transactions, the customer could pay $105 in fees for purchases worth a total of $10. Often, these charges are going to the people who can least afford them.

“We are generally bringing claims on behalf of customers who frequently are the poorest of the bank’s customers,” Fearon says. “People who have plenty of money usually don’t overdraw their account; people who struggle financially are more likely to overdraw their account. This is unfair because it’s not the fault of the customer, but because of a scheme by the bank to generate overdraft fees. A relatively small charge - even a dollar charge - can lead to multiple fees and hundreds of dollars in extra charges.”

But it can be difficult for customers to know if they have been victims of transaction reordering because written statements may reflect transactions ordered chronologically, even if the bank has reordered them for its own purposes. Fearon says that some customers go to the bank to complain, only to be blamed for the problem and told to be more careful with their transactions.

“Really, though, the banks are the ones causing the overdraft,” Fearon says. “Most of our cases come from a customer who had a gut feeling that he or she knew the account balance, knew the transactions and something didn’t work out right, and this happened again and again.”

Lawsuits have been filed against some banks alleging banks reorder transactions to push customers into overdraft to increase profits. Some banks have settled lawsuits filed against them.

Fearon says customers can bring their account statements with their fees and charges in and his firm can process the records to determine whether the bank has reordered the transactions. It’s important to have a copy of the bank agreement, which will show whether the bank said it would process transactions chronologically. It also shows whether the bank has an arbitration agreement or class-action waiver.

“We are in the process of pursuing claims across the county for customers of a number of different banks, some nationwide and some regional,” Fearon says. “The banks we are actively pursuing are Peoples Bank, MB Financial, MidSouth, First Niagara and other banks. There are some that we’ve settled where we’ve been able to resolve the claims and get back money for customers who have paid fees. It’s a good idea for customers to come forward now, so we can analyze if there is a claim. If people feel they have been mistreated, we’re happy to take them.”