U.S. Bank to pay $55M to settle overdraft lawsuits

It will pay $55 million for hiking fees by reordering transactions.

U.S. Bank has agreed to pay $55 million to settle lawsuits claiming it manipulated overdraft fees on debit card transactions.

If the settlement is approved, more than 1 million U.S. Bank customers who paid overdraft fees could eventually see some money returned. U.S. District Judge James Lawrence King in Miami is expected to review the matter within 90 days.

The Minneapolis-based bank is the latest to settle claims in the mass of litigation over excessive overdraft fees involving more than 30 banks, including Wells Fargo. About 13 banks have agreed to settle so far, including Bank of America, whose $410 million settlement was approved last year.

The U.S. Bank settlement involves three lawsuits filed against the company in 2009 and 2010 that were seeking class action status. The plaintiffs claim that U.S. Bank's computer system reorganized customers' debit card and ATM transactions from high to low dollar amounts as opposed to when the purchase was made, resulting in customers being charged overly high overdraft fees.

When banks shuffle the order of payouts from a person's checking account from highest to lowest amount, they subtract larger purchases first. That causes someone running close to negative to dip below zero faster, resulting in a greater number of "bounced" items, and more fees.

"The string of settlements reflect, in our view, a recognition by most of these banks that the anti-consumer practices we complained of in these lawsuits had merit, was legitimate and actually hurt real people," said Robert C. Gilbert, the plaintiff's coordinating counsel at Grossman Roth, the Coral Gables, Fla., law firm representing bank customers. "The banks have made a decision to try to move in a more constructive fashion."

U.S. Bank issued a brief statement saying it was "pleased to put this matter behind us."

"We have made changes to the way we handle customers' accounts in recent years, and we will continue to look for opportunities to enhance our consumer products," bank spokesman Teri Charest said in the statement.

Changes include dropping the high-to-low sequencing of payments in accounts.

San Francisco-based Wells Fargo & Co., which has a major presence in Minnesota, has not settled. It is appealing a federal judge's order that it return $203 million in excess overdraft fees to its California customers, arguing that the dispute is a matter of federal, not state, law.

Wayzata-based TCF Financial Corp. also was sued for such high-to-low ordering of payments, but the case was dismissed, Gilbert said. TCF ultimately dropped the high-to-low sequencing when it decided to give its customers the option of either paying overdraft fees per day, or per item.

The U.S. Bank class action settlement comes as bank overdraft practices draw greater scrutiny. The Consumer Financial Protection Bureau, the new federal consumer watchdog, is evaluating overdraft protection plans for potential action.

Gilbert said his firm faced a hurdle because of a U.S. Supreme Court decision last year that breathed new life into the mandatory arbitration agreements that many companies use that result in plaintiffs fighting it out individually in arbitration instead of court. After that opinion, he said, U.S. Bank sought to invoke its mandatory arbitration clause. The judge said no, and the bank was appealing that decision when it finally decided to settle.

Once the settlement is approved, the law firm will work with U.S. Bank to determine who is due money and how much. Affected customers will likely be contacted by postcard sometime around the end of the year, Gilbert said.

The overdraft litigation may be squelching high-to-low sequencing, but it hasn't halted the upward creep in overdraft fees at some banks.

Last Friday, U.S. Bank began charging more for overdrafts, going from a fee of $10 for overdrafts of $20 or less and $33 for those above that, to $15 for overdrafts of $15 or less and $35 for those above that.

New rules that went into effect in 2010 prohibit banks from automatically assessing fees on overdraft items and require banks to get a customer's written approval to opt in to overdraft protection plans.

The Center for Responsible Lending, a consumer advocacy group that has been fighting for stricter rules on overdraft practices, says the new rules don't go far enough.

Despite the new requirements, overdraft fees remain a big moneymaker for lenders. U.S. banks and credit unions collected $31.6 billion in overdraft fee revenue last year, according to Moebs Services, an independent economic research firm in Illinois.

Jennifer Bjorhus • 612-673-4683

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  • U.S. Bank announcement

    Monday July 2, 2012

    U.S. Bancorp will pay $55 million to settle claims it gouged customers by charging excessive overdraft fees.

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