Have you ever looked at your bank statement, and wondered how and why overdraft fees exist? Then you are not alone. Overdraft fees have been a common practice among banks for a long time, but in recent years they have faced increasing scrutiny and legal challenges.
Many banks have been accused of manipulating their transaction processing to maximize overdraft fees, often resulting in significant fees for the consumers who are least able to afford them.
Luckily there are certain ways in which consumers can hold banks accountable for these unfair practices and seek justice for the harm they have suffered. Today we are taking a closer look at how class action lawsuits can achieve just this.
Banks were not always charging their customers exorbitant overdraft fees. In fact, this method took off in the 1990s, when banks began to offer overdraft protection as a service to their customers.
This new method meant that if a consumer tried to withdraw more money than they had in their account, they would be allowed to do so, but for a significant overdraft fee, typically ranging around $40.
Banks from all over the country soon saw the potential in this, and overdraft fees quickly became a significant source of revenue for banks, with some banks earning hundreds of millions of dollars in fees each year.
Not everyone can afford to pay $30 or more in overdraft fees, and in some cases these unreasonably large fees have even had a devastating impact on those living paycheck to paycheck, as well as those with lower incomes.
For many families and households this has meant that a single overdraft fee could lead to a cascade of additional fees and charges, causing financial hardship and making it even more difficult to make ends meet.
The negative impact in and of itself is one thing. But in recent years banks have been accused of manipulating their transaction processing in order to maximize overdraft fees. For example, some banks have been accused of reordering transactions in a way that increases the likelihood of overdrafts, rather than processing them in chronological order.
This practice can result in multiple overdrafts for a single transaction, since the largest transaction is processed first, depleting the account balance and triggering additional overdrafts for smaller transactions that would have been covered if processed in chronological order. Thus banks have actively been trying to optimize their own earnings, at the expense of their customers who trust the banks.
Many banks have been facing lawsuits with regards to overdraft fees. This includes Bank of America, Wells Fargo, and JPMorgan Chase. But our example showcases the 2020 case of TD Bank.
After a lengthy litigation period, they finally agreed to settle a class action lawsuit for $97 million related to allegations that the bank manipulated its debit card transaction processing to maximize overdraft fees.
The settlement included refunds for customers who were charged overdraft fees as a result of the alleged practice, setting a clear precedent for banks and consumers alike.
It can be beneficial for individual consumers to group up in a class action lawsuit, in order to recover their fees, seek damages and to also send a clear signal to the banks; that overdraft fees are not the future.
Class action lawsuits can also help level the playing field for consumers who may feel powerless against large, powerful banks.
If you believe that you have been charged unfair overdraft fees by your bank, it is important to consult with an experienced attorney who can advise you on the best course of action.
We are always available for a consultation about your options, so contact us today and learn how you can hold your bank accountable!