Million-Plus Clients To Receive Bank of America Overdraft Settlement
May 23 2011 - 6:32PM
Dow Jones News
More than a million Bank of America Corp. (BAC) customers who
overdrew their checking accounts could recoup some overdraft fees
following a settlement that received initial approval from a
federal judge Monday.
The settlement, in Miami federal court, calls for the bank to
put $410 million in an escrow account that will be divided among
people who where charged overdraft fees as early as 2001. The law
firm in the case says well over 1 million consumers will receive a
part of the payment.
The bank will be searching through all customers, not just those
involved in the suit, the firm said.
The settlement had been reached in early February, but court
documents at that time included little detail.
Bank of America and several other large banks faced a series of
lawsuits that were consolidated in Miami federal court. The
consolidated suit alleged the bank "systematically" re-sequenced
debit transactions in order to maximize the bank's overdraft fee
revenue.
Many banks used a system in which debit transactions were
recorded with the largest transaction first, not in chronological
order, thereby leading a customer's account to dwindle faster.
The bank denies the allegations in the settlement. A spokeswoman
reiterated Monday it was "pleased to reach a fair resolution to
this matter" and was "advocating for a standard solution that would
ensure a consistent posting order approach across the
industry."
Also named in the lawsuits were Citigroup Inc. (C), J.P. Morgan
Chase & Co. (JPM), Wells Fargo & Co. (WFC), U.S. Bancorp
(USB), SunTrust Banks Inc. (STI) and Huntington Bancshares Inc.
(HBAN).
Jeremy Alters, of the Alters Law Firm, which represented the
plaintiffs, said the re-sequencing of debit card transactions was
done by more than 30 banks and that he intends to get consumers
more. Alters said he couldn't comment on whether other banks were
settling, but that he hoped they would.
"They have been wronged," Alters said of consumers, adding the
settlement "is a blueprint for success."
According to the court document, the attorneys' fees could be up
to 30% of the settlement.
Other banks have reached settlements on similar cases. Fifth
Third Bancorp (FITB) settled a case last year and a federal judge
in California ruled against Wells Fargo.
New federal regulations have forced the banks to change
overdraft tactics on debit cards. The fees are usually heavy
charges made when customers spend more than is in their account at
the time. The situation was often described as a $38 cup of coffee;
that is, a consumer who mistimed the purchase of a $3 cup of coffee
would find a $35 overdraft fee tacked on.
The new regulations say that banks cannot charge overdraft fees
on debit cards without first getting customers' approval. Some
banks have pushed aggressively to get their customers to "opt-in"
to overdraft fees.
But Bank of America decided to do away with the ability to
overdraft with a debit card, rejecting purchases at the point of
sale. Chief Executive Brian Moynihan had even said the practice
wasn't in the bank's or its customers' interest.
"When you looked at it in hindsight, it's not the right way to
treat them," Moynihan said last year.
Still, Laurie Redhead, an executive in the retail bank, did say
at a recent conference the bank was looking at new overdraft
options. She said the bank may test a text-messaging system that
would alert customers who are rejected at the point of sale for
lack of funds that they could complete the purchase if they
conceded to an overdraft fee.
-By David Benoit, Dow Jones Newswires; 212-416-2458;
david.benoit@dowjones.com
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