Overdraft Fee Lawsuits Draw Attention to Issuer Practices

by Mercator Advisory Group 0

Bank of America settled the class action lawsuit on overdraft fees filed against them with a $410M payback to cardholders. This suit has drawn unwanted attention to the back office configuration of posting systems, since the suit alleged that the bank processed transactions in a manner designed to maximize overdraft fee income – something the bank denies occurred. In its comments on the settlement, Bank of America has called for a standardized solution that could be used throughout the industry.

The Wall Street Journal reports the agreement will send money to more than 1 million BofA customers and former customers. It’s the result of several similar lawsuits against multiple banks being consolidated in Miami federal court.

The consolidated suit alleged the bank “systematically” resequenced debit transactions in order to maximize the bank’s overdraft fee revenue. Many banks allegedly used a system in which debit transactions were recorded with the largest transaction first, not in chronological order, thereby leading a customer’s account to dwindle faster.

The bank denies the allegations in the settlement. A spokeswoman reiterated Monday it was “pleased to reach a fair resolution to this matter” and was “advocating for a standard solution that would ensure a consistent posting order approach across the industry.”

It’s possible that Federal regulators will push the industry to a standard before it volunteers a solution, since the FDIC has included processing system configuration in their most recent Overdraft Guidance document, now in its commentary period.

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