Americans spend more money in bank overdraft fees than they do on clothes,
eggs, books, newspapers and magazines combined! Banks make more than $14
billion – yes $14 billion – annually on overdraft fees. About
one-third of that amount came from re-sequencing transactions from high
to low so banks could make even more money.
Financial institutions charge fees when a customer’s checking account
doesn’t have enough money for a purchase but the bank pays the transaction
anyway. The bank knows the customer doesn’t have enough money at
the point of purchase but pays the transaction anyway. Essentially, the
bank “covers” the purchase then charges the customer an overdraft
fee, typically $35.00. The practice is particularly egregious on debit
card transactions for these customers who do not know they have overdraft
To make matters worse, in the early 2000’s the banks sought to increase
their take in overdraft fees by re-sequencing transactions from high to
low – particularly on debit card transactions. By way of example,
you start the day with $100.00 in your bank account. You then spend $10.00
for breakfast; $20.00 at the pharmacy; and, then $105.00 on clothing.
The banks re-sequence the transactions from high to low without your knowledge
so the $105.00 transaction is posted first creating not 1, but 3 overdraft
charges. Banks have made upwards of $4 billion a year by this process.
Lawsuits were filed against most of the big banks dating back to 2009 and
many banks settled these cases for a total of more than $1 billion combined.
Wells Fargo, on the other hand, refused. Its tactic, so far successful
has been to try to force its customers into a private forced arbitration
proceeding that would result in no accountability, while keeping the truth
hidden from public view. In August, the 11th Circuit Court of Appeals is set to hear an appeal from Wells Fargo after
a court previously denied the bank’s attempts to compel arbitration.
Ultimately, this case will have serious ramifications for consumers who
rightfully demand their day in court after being taken advantage of by
a big business like Wells Fargo. If it approves Wells Fargo’s forced
arbitration proceeding, other large businesses will be encouraged to attempt this.
Overdraft fees are an enormous drain on checking account customers, particularly
poor and working-class families. The Consumer Financial Protection Bureau
found that nearly three-fourths of overdraft and related fees are paid
by only 8 percent of account holders, who incur 10 or more fees a year.
The Center for Responsible Lending found that 2 million Americans incur
20 or more fees per year – exceeding $700 annually. Further, these
funds are often not spread evenly throughout the year but come in unpredictable,
sporadic episodes. A single negative balance episode can trigger hundreds
of dollars in fees in just a few days and drive a bank customer much deeper
in the hole.
At the same time, the use of forced arbitration clauses by big banks continues
to grow with devastating consequences for consumers. Forced arbitration
prevents consumers from banding together (in proceedings such as class
actions) to take on big institutions like Wells Fargo. The bank knows
a consumer is unlikely to pursue an arbitration proceeding over tens or
even hundreds of dollars, especially when the arbitration process itself
is so stacked against the customer. So without class actions, the bank
has far less fear of being held accountable.
Many banks that settled overdraft posting order cases have since added
or bolstered their forced arbitration clauses. Meanwhile, Wells Fargo’s
income from overdraft fees rose 7.5 percent last year, prompting a group
of U.S. senators to question the surge in overdraft income. Clearly, big
banks are all too willing to return to underhanded practices the minute
the spotlight is off them.
Fortunately, the Consumer Financial Protection Bureau, after years of study,
has issued a rule that will ban banks from using forced arbitration clauses.
The rule will not apply to pending cases like the overdraft litigation
against Wells Fargo, but if this CFPB rule is not reversed by Congress
or the Trump Administration, it will level the playing field for the future
and serve as a healthy deterrent for banks thinking about taking advantage
of their customers.
The 11th Circuit has the opportunity to prevent Wells Fargo from opting out of
legal accountability. And the CFPB rule will ensure that no bank may do
so in the future.
The class action lawyers at Golomb & Honik ae part of a team of lawyers
that have led this very successful litigation and continue to fight for
consumers who have been victims of re-sequencing so banks can gouge larger
fees. If you believe you have been the victim of re-sequencing your banking
transactions, please give us a call at 1-800-355-3300 or 1-215-985-9177
or fill out our confidential