JPMorgan Chase & Co., the biggest U.S. bank by assets, reached a preliminary agreement to pay $110 million to settle litigation saying it gouged customers on overdraft fees for checking accounts, court records show.
The settlement would resolve claims by customers including Andrea Luquetta of Los Angeles, who sued over fees charged to debit cards attached to her checking account. U.S. District Judge James Lawrence King in Miami must approve any settlement. King had earlier rejected arguments by various banks that customers were legally bound to arbitrate the dispute.
“We’re pleased to have reached an agreement in principle,” Patrick Linehan, a JPMorgan spokesman, said in an e-mailed statement.
The litigation before King involves more than 30 banks sued over their overdraft-fee policies. The customers say the banks reorder debit-card transactions in their computers to maximize overdraft fees. Bank of America Corp., the second-biggest U.S. bank by assets, agreed last year to pay $410 million without admitting liability to settle an overdraft lawsuit brought by its customers.
In her lawsuit, filed in 2009, Luquetta claimed JPMorgan engaged in “unfair, deceptive and unconscionable” assessment and collection of overdraft fees. Her complaint also refers to the practices of Washington Mutual Inc., which JPMorgan bought in 2008.
Chase didn’t decline debit transactions when a customer had insufficient funds and didn’t warn them an overdraft fee would be charged, Luquetta alleged. Rather, Chase routinely charged customers overdraft fees of $25 to $35 for transactions of only a few dollars, according to the amended complaint.
Chase and Washington Mutual “either refused to allow their customers to opt out of overdraft protection, or failed to adequately disclose to their customers that they may do so,” according to the complaint, which sought to proceed as a class- action, or group, lawsuit.
“In many instances, these overdraft fees cost the banks’ account holders hundreds of dollars in a matter of days, or even hours, when they may be overdrawn by only a few dollars,” it claimed.
In September 2009, Chase announced several changes to its overdraft fees for debit cards.
It eliminated overdrafts unless a customer elects the service, modified the posting order of charges to recognize debit-card transactions and ATM withdrawals as they occur, ended fees for accounts overdrawn by $5 or less, and reduced the maximum number of fees per day to three from six.
Last September, King ruled that customers of SunTrust Banks Inc., M&T Bank Corp., Regions Financial Corp. and Branch Banking & Trust Co. can use the federal courts rather than arbitration to pursue overdraft claims. He said a U.S. Supreme Court ruling last April in AT&T Mobility LLC v. Concepcion didn’t require arbitration in every case.
In October, a federal appeals court ruled that King should consider the JPMorgan case in light of the Concepcion ruling. The judge, the appeals court ruled, should have limited the pretrial collection of evidence to “issues bearing significantly on the arbitrability of this dispute until the question of arbitrability has been decided.”
Bruce Rogow, a lead attorney for the JPMorgan Chase customers, wouldn’t comment on the accord. Another lead attorney, Robert Gilbert, didn’t return a phone call or e-mail seeking comment.
Bank of America’s settlement, finalized in November, is the largest thus far in the litigation. The accord won court approval despite objections the amount was too little for customers and lawyers were being paid too much.
Union Bank NA agreed to a $35 million settlement with customers in November; an Associated Banc-Corp. unit, Associated Bank, agreed in November to pay $13 million.
The case is In re Checking Account Overdraft Litigation, 09-md-02036, U.S. District Court, Southern District of Florida (Miami).