Bank Overdraft Fee Litigation
In the bank overdraft litigation, Baron and Budd took on Bank of America and other national banks accused of manipulating debit transactions to maximize overdraft fees. Through our work on the court-appointed committee that represented consumers in the case, known as the Plaintiffs’ Steering Committee, we helped negotiate a $410 million settlement with Bank of America on behalf of consumers. Not only did the settlement allow for the repayment of charges, but it also led to widespread changes in the banking industry. Because of this lawsuit, many large banks have revised their overdraft fee policies to no longer reorder debits or offer “courtesy” overdraft services without the client’s consent.
2012 – $100 million settlement with JPMorgan Chase
2013 – $410 million settlement with Bank of America
2014 – $14.5 million settlement with Comerica
Baron & Budd is a member of the Plaintiffs’ Steering Committee in a class action lawsuit asserting the manipulation of data by numerous national banks in order to increase overdraft fee revenue. The case alleges that major banks, including JPMorgan Chase, Bank of America and Comerica, intentionally reordered debit card transactions to promote overdraft fees. Not only has this case resulted in the repayment of charges, but it has also led to widespread changes in banking practices with regard to overdraft charges. Many large banks have changed their overdraft fee policies, no longer “reordering debits” or offering “courtesy” overdraft services without customer consent, and Chase agreed to not charge overdraft fees on debits of $5 or less.
Baron & Budd shareholder Russell Budd serves on the Plaintiffs’ Executive Committee of the overdraft fee litigation. In 2014, Budd served as co-lead counsel in a settlement with Comerica, valued at more than $14.5 million. In 2013, the $410 million settlement was reached with Bank of America in the case. Budd also led negotiations in a $110 million settlement with JP Morgan Chase in 2012. Litigation against other banks in the MDL is ongoing.
In Re: Checking Account Overdraft Litigation; Case No. 1:09-MD-02036 (U.S.D.C. S.D. Fla.).
In 2012, Baron and Budd’s legal team was selected as a finalist for the 2012 Trial Lawyer of the Year Award by the legal non-profit organization Public Justice for their groundbreaking work on the bank overdraft litigation.
What is This About?
What began as a “courtesy” service to save customers the embarrassment of a declined debit card became a big money maker for the banking industry.
Up until July 2011, when federal laws stopped this practice, many of the nation’s largest banks used a deceptive practice to collect more in overdraft fees from debit card customers than should have ever been collected. These “courtesy” overdraft fees typically ran $20 to $35 each but quickly added up to hundreds, even thousands, of dollars.
Here’s the way this deceptive practice worked: the banks maximized the number of fees by reordering transactions by dollar amount from highest to lowest rather than chronologically. Regardless of the order in which you made your purchases, the bank took the largest transaction amount and deducted it from your bank account first. The bank then took the next largest and deducted it and so forth. The result was higher profits for banks. In fact, overdraft fee revenue reached an all-time high in 2009: $37.1 billion. In 2011, banks made $29.5 billion from overdraft charges from American customers.
Who is funding this boon to banking profits? Consumers who can least afford to pay. According to a banking consultant quoted in USA Today, it’s estimated that consumers who maintain checking account balances in the bottom 10 percent pay approximately 40 percent of the overdraft fees.
What If I Am Still Being Charged Excessive Overdraft Fees Now?
Some banks may still be charging overdraft fees. However, in reaction to these lawsuits, many of these banks have added disclosures about the overdraft fees or included forced arbitration clauses in their contracts, meaning that consumers who may have been hit with the excessive fees are not able to bring their case before a jury. Read more about what forced arbitration means here.