Some of the heat is off the payday loan industry as banks are being challenged for their overdraft fees. These fees are eating away at the income of struggling families.
When an account balance is overdrawn, the banks cash in on the account holder’s error. The error could be for any amount and the bank would charge the same fee. Make the error multiple times without realizing that the account is out of money and get a fee for each overdraft transaction. Banks are now being challenged for this billion dollar revenue system.
- U.S. Bank agreed to a $55 million settlement with their overdraft policy as the root of the problem. The bank was being accused of reordering transactions which led to additional fees being attached to individual accounts. Reordering accounts is when, at the end of the day, banks will subtract the highest value transaction first and work its way down to the smallest. Doing this will deplete the money sooner leaving more transactions susceptible to overdraft charges. Plaintiffs for this case may be disappointed as to the payoff they will receive, as the amount may be lower due to a mandatory arbitration clause built into the checking account contract for U.S. bank. Other banks which have settled similar suits are Bank of America for $140 million, JPMorgan Chase for $110 million, TD Bank for $62 million, PNC Bank for $90 million and Citizens Financial for $137.5 million. Wells Fargo and Citi banks have undetermined amounts waiting to be settled.
- Some California credit unions are now in the midst of several class-action lawsuits in regards to their overdraft practices. Once again, the shuffling of transactions led to multiple charges for account holders. The suit also charges the credit unions with not disclosing overdraft policies, used deceptive advertising and published unreliable and inaccurate account balance information. Other smaller violations are also included.
- HSBC Bank USA is now facing a lawsuit in New York for charging excessive fees using the reordering practice of posting transactions.
- In Florida, BB&T had included a clause in their account contract which stated that mandatory arbitration to avoid a class-action lawsuit with court costs to be paid by the customer. A new court ruling will keep the arbitration clause in place but will omit the mandatory section of the cost paid by the customer.
- Just this month, Chase bank made a decision to discontinue charging overdraft fees for transactions smaller than $5.00. Of course, this action stems from class-action a suit charging the bank with excessive overdraft fees. This new policy will take affect starting on July 22, 2012 as part of the settlement. The bank will also practice processing transactions in chronological order.
The Consumer Financial Protection Bureau has been investigating overdraft policies and fees since February of 2012. The amount of revenue banks have collected in overdraft fees is alarming. Abusive practices by these institutions have targeted low-income families.
Responsible Payday Lending and Bank Practices
The push is on for more companies to step up and be more responsible with customer transactions in order to protect the consumer’s rights. Predatory practices by any financial business will be addressed by the courts as people continue to make unfair practices known. Low cost payday loan lenders should be following best practices terms and banks and credit unions will be forced to do the same.
