RBS Citizens settles overdraft-fees case for $137.5 million

(Reuters) – Citizens Financial Group Inc agreed to pay $137.5 million to settle lawsuits accusing it of charging customers excessive overdraft fees, in the second-largest settlement to date in nationwide litigation.

Citizens, a unit of Royal Bank of Scotland Group Plc (RBS.L), joins Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and several smaller lenders in settling litigation over the fees, which are typically assessed when customers overdraw their checking accounts.

“It is a very fair and reasonable settlement” that lets thousands of Citizens customers recover a “significant percentage of the likely damages from excessive overdraft fees,” Peter Prieto, a lawyer for the customers, said in a phone interview.

Citizens spokesman Jim Hughes said the bank is pleased to put the matter behind it. The Providence, Rhode Island-based lender has roughly $130 billion of assets, and more than 1,500 branches in 12 U.S. states.

A $410 million overdraft settlement agreed to by Bank of America, the largest to date, won court approval in May 2011. JPMorgan reached a preliminary $110 million accord in February.

The British government owns 82 percent of RBS, after rescuing the lender during the 2008 financial crisis.

Wednesday’s settlement requires approval by U.S. District Judge James Lawrence King in Miami, who oversees overdraft cases against more than 30 lenders that were consolidated in 2009. Roughly one-third of the lenders have settled.

Customers accused lenders of routinely processing transactions from largest to smallest rather than in chronological order. They said this caused overdraft fees, typically $25 to $35, to pile up for millions of people.

Critics say the banks’ practice disproportionately burdened customers with lower incomes and balances. In 2010, the Federal Reserve barred banks from charging overdraft fees on electronic and debit card transactions without advance customer approval.

Prieto said some banks that continue to litigate have arbitration provisions in their deposit agreements with customers. Some banks have also agreed to try mediation.

Capital One Financial Corp (COF.N), Citigroup Inc (C.N), PNC Financial Services Group Inc (PNC.N), US Bancorp (USB.N) and Wells Fargo & Co (WFC.N) are among large banks that have not settled.

The case is In re: Checking Account Overdraft Litigation, U.S. District Court, Southern District of Florida, No. 09-md-02036.