Bank of America Pays $410 Million to Settle Overdraft Suit

Bank of America will be putting $410 million into an escrow account to be divided among its customers who were charged overdraft fees because of checking and debit-card transactions dating back to 2001.

The payment is part of a federal court settlement tentatively approved by a federal judge this week. All of the bank's customers will be eligible, not just those involved in the suit.

The law firm that brought the class-action lawsuit says that about 1 million customers will be eligible for payments, although legal fees are likely to eat up about 30% of the amount.

Randy of Yonkers, N.Y., might be one of them.

Last fall, he overdrew his checking account by writing an $80 check when there was only $53 in the account. Then the bank applied overdraft fees to three debit card charges that Randy said had already been paid.

“They manipulated those $35 fees to be deducted from my account” and made it appear there was no money in the account when in fact the account was not overdrawn at the time the transactions occurred, he said.

“All they tell me is they can't change it,” Randy ruefully told ConsumerAffairs.com last October.

'Resequencing'

The suit was one of several that challenged the way banks treated debit transactions. The suits accused the banks of “resequencing” debit transactions, recording the largest one first rather than in chronological order – thus causing the customer's balance to dwindle faster than it might have otherwise.

Bank of America and about 30 other banks named in the action have denied they did anything wrong but a Bank of America spokesman was quoted as saying the bank was “pleased to reach a resolution” and hoped the settlement was produce “a standard solution that would ensure a consistent posting order approach across the industry.”

Other banks named in the suit, which was consolidated from several individual suits, include J.P. Morgan Chase, Wells Fargo, U.S. Bank and SunTrust. Fifth Third Bank settled last year.

Federal regulations now prohibit banks from charging overdraft fees on debit card purchases unless they first get customers' approval to do so. Some banks have been aggressively urging customers to opt-in to overdraft protection but Bank of America no longer covers overdrafts on debit cards, simply rejecting the transaction at the point of purchase.