Bank of America Agrees to $410 Million Overdraft Fee Settlement; Similar Litigation Pending Against Other Banks

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In a settlement that illuminates the connection between major events that capture society-wide attention and the infusion of substantial value into class action settlements, Bank of America has agreed to pay $410 million to settle sprawling litigation stemming from allegations that consumers were charged unlawful overdraft fees. The numerous cases were consolidated into an MDL action in a Florida district court as In re Checking Account Overdraft Litig., No. 09-MD-02036-JLK (S.D. Fla. filed June 10, 2009).

The plaintiffs alleged that Bank of America processed transactions in a way that maximized the assessment of overdraft fees, which until recently had been a significant source of revenue for commercial banks. Specifically, the class alleged that, instead of declining debit card transactions when customers’ accounts had insufficient funds to cover a purchase, Bank of America would authorize the charges. Moreover, it was alleged that charges were posted out of chronological order, and in order of largest transaction to smallest, thereby maximizing overdraft-fee revenue.

If the settlement is approved, the average class member’s recovery will be a non-trivial $78 — a piece of evidence to counter the notion that class members only receive pennies while lawyers significantly benefit from class action settlements. While overdraft fees have long been the focus of consumer complaints, it is only now, in the wake of abuses in the financial industry attendant to the “Great Recession,” that the claims have acquired substantial settlement value. Indeed, overdraft litigation is also pending against U.S. Bank, Key Bank, and HSBC. Now that the Bank of America settlement has set a rough market price of approximately $78 per customer, it is unlikely that other banks will be able to negotiate a smaller settlement or be willing to face jurors who have been inundated with adverse news stories about banking practices and no doubt influenced by their own experiences with excessive overdraft fees.