Dirty Dealing? Bank Overdraft Lawsuits Getting Settled

by | Invoice Factoring Advice

Another bank has reached a tentative settlement in response to charges that it manipulated customer checking accounts in order to trigger multiple bank overdraft penalties.

Green Bay, Wisconsin-based Associated Bank has agreed to pay $13 million to settle lawsuits brought in 2009. More than 30 U.S. banks, including Bank of America, Wells Fargo, HSBC, Citibank, JP Morgan Chase, and PNC are accused of similar practices.

In what could fairly be likened to dealing from the bottom of the deck, allegations were made that the banks were deliberately timing the order checks were processed in an attempt to maximize bank overdraft fees. Transactions were allegedly re-shuffled from the highest dollar amount to the lowest, thereby depleting the accounts’ funds more quickly and triggering maximum overdraft fees in the account.

The dubious situation with bank overdraft fees works like this:

An account begins the day with $1000.

Checks are presented for $50, $500, $350, $80 and $250. Processed in order, only the last debit incurs an overdraft, but manipulated from high to low, three checks are tagged as NSF.

Chronological Check ClearingRe-Ordered Check Clearing
BalanceDebitsBalanceDebits
10001000
50500
950500
500350
450150
350250
100-100
8080
20-180
25050
-230-230

Note that in both cases, the account is overdrawn by $230, which is obviously not good. But by re-ordering the order that charges were tabulated, the bank stands to collect three non-sufficient fund bank overdraft fees ($15 to $40 each, depending on the particular bank), rather than one. That’s adding insult to injury.

Update on the Bank of America overdraft lawsuit – and other key updates

The Bank of America overdraft lawsuit is a class action lawsuit; the bank has settled it for $410 million. A Miami judge approved the settlement in November. Facing similar allegations and overdraft lawsuit, Wells Fargo agreed to pay California account holders $203 million last year.

Citibank, JPMorgan Chase, Wells Fargo and HSBC have all announced they will no longer alter the transaction order in a bid to maximize bank overdraft fees. But banks have been accused of other manipulations to bump-up NSF fees, including the slowing of the clearing of deposits, posting withdrawals before deposits made the same day, and debiting accounts on bank holidays when customers cannot make deposits.

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