U.S. Bank overdraft settlement drags on

Nearly a year after lawyers announced that U.S. Bank would pay $55 million to settle accusations that the bank wrongly boosted its overdraft fees, the case is far from closed.

The settlement is grinding through the court approval process. No notices have been mailed to U.S. Bank customers who were affected, estimated to be at least 1 million.

A lawyer for the plaintiffs said Monday that U.S. Bank continues to sift through "massive amounts" of data to identify who was affected and calculate the amount of money they are entitled to receive.

"We're really now in the thick of it," said Robert Gilbert of Grossman Roth, the Coral Gables, Fla., law firm representing bank customers.

For several years, U.S. Bank reordered debit card and ATM overdrafts by size, not when the overdraft occurred, which prompted the lawsuit accusing the bank of overcharging customers. U.S. Bank already has dropped the high-to-low sequencing of transactions, and said through a spokesman Monday that it's working as fast as it can to present the information in a meaningful way.

Gilbert said he expects to go to court to start the preliminary approval process within 30 days, and that final court approval could be six months away. That length of time is not unusual, he said.

The settlement covers U.S. Bank customers who were charged excessive overdraft fees from about 2004 to 2010, when new federal rules required banks to get consumer consent before enrolling them in overdraft coverage and charging them for overdrafts. The start dates vary somewhat by state because of differing statutes of limitations, Gilbert said.

The $55 million settlement with U.S. Bank is one of a string of settlements coming out of a tangle of overdraft fee litigation consolidated in federal court in Miami involving more than 30 banks. U.S. Bank is one of about 15 banks that have settled. About five remaining banks, including Wells Fargo & Co., have ongoing litigation. A number of cases against banks were dismissed or removed for arbitration.

The litigation over shuffling transactions from high-to-low to boost fees just scratched the surface of long-standing concerns around overdraft charges, a major source of revenue for banks. Federal regulators have for years taken steps to regulate overdraft practices. In 2010, new federal rules took effect requiring banks to get approval from customers before enrolling them in overdraft coverage, and charging them for covering overdrafts from ATMs and nonrecurring point-of-sale debit card transactions.

The Consumer Financial Protection Bureau (CFPB) released a new report Tuesday on overdraft practices. Though it does not name any banks, it says that complicated fee structures and transaction postings, among other things, make it difficult for consumers "to anticipate and avoid overdraft costs on their checking accounts."

The report noted that high-to-low ordering of overdraft transactions is still used by some banks, although it didn't indicate how widespread that posting practice is.

Despite efforts to regulate overdraft practices, the fees remain a sizable share of bank revenue from consumer checking accounts, the study found, and are a significant source of overall revenue for banks that rely heavily on consumer business. About 61 percent of the fee revenue generated by consumer checking accounts comes from overdraft fees and non-sufficient-funds charges.

The CFPB report also found that customers who opt in to overdraft coverage wind up paying significantly higher fees than those who don't.

The report says the new findings "will help the CFPB assess whether further action is warranted." The CFPB, which has authority over banks with more than $10 billion in assets, said it's continuing to study the matter and hasn't determined whether it will intervene.

Consumer advocates applauded the research and say they hope it leads to better consumer protection.

"Paying a $35 overdraft charge is a very expensive way to take out a one-day loan and it adds up in a hurry," said Vildan Teske, a consumer finance lawyer at Crowder, Teske, Katz & Micko in Minneapolis. "Consistency across banks, as well as simplifying the overdraft products offered, would be a very good way to start improving the system."