American consumers sue BofA, JPMorgan, Citi and others for overdraft fees

 Bank of America, Wachovia, U.S. Bank, JPMorgan Chase and Citibank were sued in a class action case that was filed by US consumers with the United States District Court for the Southern District of Florida in Miami for abusive overdraft fees, reported Lieff Cabraser Heimann & Bernstein, LLP.

"The collection of excessive overdraft fees, usually around $35 per transaction, impacts millions of Americans each year and has become a multibillion-dollar profit center for the banks," explained lead plaintiffs’ counsel Bruce S. Rogow. "In many instances, these overdraft fees cost customers hundreds of dollars in a matter of days, or even hours, when they may be overdrawn by only a few dollars. Charging a $35 overdraft fee when a college student uses her debit card to buy a cup of coffee is unconscionable." 

When a consumer opens a checking account a bank provides him/her with debit cards for the withdrawal of cash from ATM machines and the purchase of goods and services. Interestingly, a great number of bank customers do not know that as part of the process of obtaining the debit card, banks automatically enroll their customers in "overdraft protection,” which is launched automatically when a cardholder spends more than there is in the account to cover the purchase. While a bank could decline such transaction or warn the user against overdraft but instead it prefers to have a cardholder spend more than in the account because in this case he/she will pay several times more. This scheme allowed banks to collect over $17 billion in overdraft fees in 2007. This year the number is expected to make up $40 billion.

"Banks do not record charges and purchases on ATM or debit cards in the order they actually occur," stated plaintiffs’ counsel Michael W. Sobol of Lieff Cabraser Heimann & Bernstein, LLP. "Instead, banks reorder the charges and purchases so that the largest charge or purchase is the first one paid by the bank. This manipulative practice is intentionally designed, the complaints allege, to maximize overdraft fee revenue." 

"If you buy your kids a $15 meal at McDonalds on your debit card and your account was overdrawn, that lunch actually cost you $50," added Mr. Sobol. "The bank won’t decline the debit transaction, nor will the bank tell you that you have overdrawn your account and is about to turn your $15 lunch into a $50 expense." 

"While all bank customers have been affected, these overdraft fee policies disproportionately affect young people, the elderly and the poor, who are most likely to maintain low account balances," noted Mr. Rogow. "Moreover, these fees have the tendency to create a domino effect, resulting in even more fees."