About 2.7 million people have received notifications this month that U.S. Bank owes them refunds as part of a $55 million overdraft settlement.
The number of postcards that went out to class members is notably higher than initial estimates of how many people would get payments under the agreement, first announced in July 2012.
The deal settles claims that the Minneapolis-based lender for years wrongfully boosted the overdraft fees it charged on debit card transactions by reordering transactions to post charges from largest to smallest amount instead of when they occurred. That type of resequencing can draw down customer accounts faster and more frequently, multiplying fees.
The pact is part of a mass of class-action litigation over the high-to-low overdraft practices that has generated more than a dozen bank settlements in recent years. Three banks, including Wells Fargo, are still fighting the lawsuits, said Robert Gilbert, the Coral Gables, Fla., lawyer representing bank customers.
U.S. Bank maintains that there was nothing wrong about the posting process and that it has not violated any laws.
The massive litigation has beaten back the high-to-low reordering practice — U.S. Bank and others stopped it — but some lenders still do it. “We think it should just be prohibited,” said Susan Weinstock, director of the Safe Checking in the Electronic Age Project at the Pew Charitable Trusts.
Overdraft fees in general remain a big money generator, and the Consumer Financial Protection Bureau is investigating bank and credit union practices. In 2011, consumers shelled out $16.7 billion in overdraft fees, according to the Center for Responsible Lending.
The U.S. Bank settlement has a final hearing in December, and U.S. District Judge James Lawrence King in Miami must still sign off on it. Checks aren’t likely to go out until next summer. Gilbert said he can’t estimate an average check amount.
Heather Jenkins isn’t expecting much.
When the postcard about the U.S. Bank overdraft settlement came, she wasn’t entirely sure what it was about. All she really remembers, she said, is that years ago when she worked as a grocery store cashier, her overdraft fees at U.S. Bank snowballed so badly the bank wound up garnishing her entire paycheck.
“I know I was pregnant at the time with my daughter and I wasn’t getting any checks,” Jenkins recalled. “It wasn’t able to buy her anything. It was all going to the bank.”
Jenkins, a 27-year-old nurse’s aide now in Grove City, Ohio, said it was several years before she did business with a bank again.
A U.S. Bank spokesman called Jenkins’ example extreme and said overcharges related to reordering transactions probably had little to do with her financial situation.
“That’s not a reflective case here,” U.S. Bank spokesman Tom Joyce said.
The 2010 lawsuit filed in Washington state against U.S. Bank accused the lender of charging Lori Brown and her son Mitchell eight overdraft charges totaling $300 in a two-day period. If the transactions had posted chronologically, the Browns would have been charged just one overdraft fee of $37.50, it said.
People won’t get back all the money they paid for reordered transactions, Gilbert said. In U.S. Bank’s case, the $55 million represents just 13 percent of the estimated total damages that could have been recovered had the overdraft case gone to trial.
It’s an unusually low percentage. A key reason for that, according to Gilbert, is that U.S. Bank tried to move the disputes out of court and arbitrate them privately and individually.
The bank insists that its agreements don’t make arbitration mandatory. But while the agreements do allow either side to choose to arbitrate a dispute, if one side chooses arbitration, the other side is obligated to participate.
Banks that invoked arbitration in the overdraft litigation settled for significantly lower amounts than banks that didn’t, Gilbert said. Union Bank in San Francisco, for instance, didn’t invoke arbitration and settled for about 63 percent of estimated damages, according to Vanderbilt Law School professor Brian Fitzpatrick.
Fitzpatrick said many of the banks in the litigation had arbitration clauses in their account agreements, but didn’t invoke them in time, and so the overdraft lawsuits proceeded in court.
Gilbert said the U.S. Bank case was settled before the courts determined whether U.S. Bank’s argument for arbitration would be upheld. Given the risk of getting zero for customers in arbitration, 13 percent looked pretty good.
Joyce, at U.S. Bank, disputed the notion that arbitration issues were key in its settlement.
“The settlement was based on a variety of factors,” Joyce said, “including a customer agreement that expressively permitted the former posting order.”
Arbitration clauses have become even more common and difficult to fight after a number of U.S. Supreme Court rulings in recent years that essentially upheld a company’s right to enforce arbitration to block consumers from taking their disputes to court. Then the court’s landmark 2011 decision in AT&T Mobility LLC vs. Concepcion upheld the right of companies to use arbitration to block consumers from pursuing class-action lawsuits specifically.
“It’s a killer for consumers,” Gilbert said. “It has been a tremendous adverse impact upon protecting the rights of consumers through this country.”
Customers also sued Wayzata-based TCF Financial Corp. over high-to-low reordering, but the lawsuit was dismissed and customers ordered to arbitrate their disputes.
People who received postcards in the U.S. Bank case aren’t required to do anything to get the refund.
The case is not about paper checks and focuses only on overdraft fees linked to debit cards. To be eligible for a refund, you must have had two or more overdraft fees in a single day that were reordered debit card transactions that resulted in overcharges.
The time frame differs by state. For people with U.S. Bank accounts that were opened in Minnesota, the time frame is Oct. 19, 2003, through Aug. 15, 2010.
For more information, go to http://www.usbankoverdraftsettlement.com/ or call toll free at 1-888-398-8207.