Chase is offering $110 million to settle a class-action lawsuit alleging
it unfairly burdened customers with overdraft fees, which allowed the
bank to earn $500 million annually. The bank has filed a tentative agreement
with the U.S. District Court for the Southern District of Florida in the
A Miami based law firm filed suit in 2009 on behalf of a sizable class
of plaintiffs against almost 40 different banks, accusing them of using
deceptive and illegal methods of calculating and charging overdraft fees.
Rather than listing transactions in chronological order, the bank processes
transactions in a sequence from highest to lowest in order to maximize
overdraft fees. Consequently, some customers were charged repeatedly for
overdraft instead of just once.
For example: A person who has $650 available in their checking account
who does $55 worth of shopping and then spends $25 at a restaurant, $10
at a bar, and $5 at the drug store before writing a rent check for $600
would be charged three overdraft fees. Rather than just bouncing the rent
check, the bank would reorder the transactions so that the $600 check
would clear, and then charge the customer roughly $90 in overdraft fees
for the three other transactions (the national average is $30 per transaction.)
While banks contend that they are doing customers a service in reordering
their purchases (arguing that larger purchases are likely more important
than smaller ones), consumers and consumer advocates vehemently disagree.
A settlement is pending the approval of Judge Lawrence King. King approved
a $410 million settlement against Bank of America in the same class action
suit last November.
Banks are now required to allow customers to opt out of overdraft protection
as part of the Dodd Frank Act of 2010, rather than automatically enrolling
them in the program. Banks as a result have increased their overdraft
fees to make up for lost revenue.