Bank of America has settled a lawsuit alleging that it charged excessive overdraft fees, agreeing to pay $410 million to put the action to rest.
Lead plaintiff Ralph Torres, a Miami resident, said in the complaint that he signed up for an account with Bank of America after seeing ads touting “free checking.”
“The bank actively provides false or misleading balance information to these customers, including plaintiff, that in turn deceives these customers into making additional transactions that, in turn, will generate even more overdraft fees for the bank,” the complaint alleged.
Multiple states and defendants
The suit, consolidated in a federal court in Florida, encompasses actions brought on behalf of consumers in 14 states who said that the bank processed debit transactions in order of size -- largest to smallest -- rather than chronologically. As a result, consumers were more likely to overdraw their accounts -- and once they overdrew once, subsequent overdraws were more likely to occur, causing some consumers to accrue hundreds of dollars in fees.
Along with Bank of America, the suit named two dozen other banks as defendants, including JPMorgan Chase, Citigroup, Wells Fargo, U.S. Bancorp, SunTrust, and Huntington Bancshares.
Overdraft charges cost billions: study
According to the Center for Responsible Lending, consumers paid $23.7 billion in overdraft fees in 2008, compared to just $10.3 billion in 2004. The center found that low-amount debit card transactions were the most frequent trigger of overdraft fees -- an average debit transaction of $20 triggered an average overdraft fee of $34.
The center further found that “16 percent of people who overdraft pay 71 percent of overdraft fees,” and that overdrafters are “more likely than the general population to be lower income, single, non-white, and renters.”
Dubious “overdraft protection”
As ConsumerAffairs.com reported in August, many consumers still choose to enroll in “overdraft protection,” the deceptively-named program that actually enables exorbitant overdraft fees. Consumers who decline overdraft protection simply have their card declined when their account has insufficient funds; consumers who opt in to the program, by contrast, are allowed to use their card but have to cough up the accompanying overdraft fee.
New rules require opt-in
Under rules promulgated in 2009, banks are no longer allowed to automatically enroll consumers in overdraft protection; they must first obtain their permission. Before a consumer is allowed to consent, she “must be provided a notice that explains the financial institution's overdraft services, including the fees associated with the service, and the consumer's choices,” according to a press release issued by the Federal Reserve.
Bank of America announced last March that it was doing away with overdraft fees altogether. Although the bank at first said that it would allow consumers to opt-in to overdraft protection, it later backtracked and said that no customer would be charged an overdraft fee.
“When you looked at it in hindsight, it's not the right way to treat them,” Bank of America CEO Brian Moynihan told The Wall Street Journal of the overdraft fees. “I don't think them opting in is going to change that dynamic, and I think they'll be upset once they opt in down the road.”
