More than 13 million Bank of America (BAC) debit-card customers could see some repayment for excessive overdraft fees the bank charged between January 2001 and May 2011.
On Monday, a federal judge gavefinal approval to a $410 million settlement in a class-action lawsuit to compensate customers who were charged fees one or more times as a result of the bank’s practice of posting debit card transactions from highest to lowest dollar amount, rather than in the order they occurred. The bank stopped doing that in May 2009.
Bank of America is far from the only one to have made that practice a policy. Suits have also been filed against J.P. Morgan Chase & Co. (JPM), Citigroup (C) and Wells Fargo (WFC), among others. The majority of banks have since changed their policies and no longer process debit-card charges that way.
The banking industry has defended the system as a way to help customers clear their largest bills first. But in reality, it was a golden goose for overdraft fees, which ranged from $25 to $35 per overdraft.
The practice was so entrenched that one consulting company developed specialized software aimed at helping banks facilitate the high-to-low ordering and to maximize consumer fees,American Banker reported in September. One financial institution — Union Bank of California — signed up and agreed to pay the consulting company a 20% cut of the fees. That bank reversed its policy last year andsettled for $35 million last week.
For consumers, it can be hard to figure out the details of a bank’s overdraft policy and its transaction processing system. Details may be available, but they’re buried in the lengthy disclosure statements attached to the accounts, which run to an average of 111 pages. That’s one reason there is a new push on Capitol Hill to streamline checking account disclosures to one page. Meanwhile, if you want to know how your charges are being processed, just call your bank and ask, consumer advocates advise.
Monday’s settlement with Bank of America came with a steep price tag. The $123 million attorney bill means less than $300 million will be paid out to its customers. Those who are included in the settlement will see automatic credits to their account. Former customers will have checks mailed to them.