Overdraft fee settled by Bank of America for $410 million in payment

Overdraft fees were the focus of a massive class action suit involving Bank of America, which the financial institution just recently arrived at a settlement agreement in. To settle the suit, B of A has agreed to pay $410 million. Comparable suits are being filed against other banks.

Account charges gets banks sued

Overdraft fees and account fees aren’t popular among consumers, and outrage over charge practices has led to major class action lawsuits against some of the largest financial institutions in the U.S. and Canada. Almost 1 million people are part of a huge class action suit, according to Bloomberg, against Bank of America, and similar suits have been filed against Chase bank, Citigroup and Wells Fargo. Bank of America is able to settle now. A $410 million settlement has already been approved. Reuters explained that over 2 dozen banks in the United States. Europe and Canada are being sued for fees like these, all of which were changed to be class action suits. In Re: Checking Account Overdraft Litigation is the name of the case.

Undue burden placed on vulnerable consumers

To be able to create multiple overdraft fees rather than just one or two, Bank of America has been accused of processing largest to smallest transactions so that accounts will go into overdraft over and over rather than in the order they came in. Overdrafts can function like short term credit; the bank will fund the transaction but add a fee to the amount owed by the account holder. Normal fees are between $25 and $35. Some customers can’t possibly afford overdraft fees. That is why customer advocates don’t like them. Banks cannot automatically put consumers in overdraft programs anymore. Consumers have to pick that choice.

Using your phone with Bank of America

The Los Angeles Times reports there’s a pilot program at Bank of America starting. If a transaction is dropped for insufficient funds, the consumer will receive a text message giving the customer the choice to have the bank cover the overdraft. The consumer has to deposit the funds then by 8 p.m. that evening to cover the transaction. If they do not, then they’ll get the $35 charge. This is only allowed with the one transaction. It is very limited. Overdraft fees will become the province of the Consumer Financial Protection Bureau, according to the New York Times, when the agency begins operation. The Consumer Financial Protection Bureau is involved in an ongoing Congressional tug-of-war over the director position and what powers the bureau should have.

Articles cited

Bloomberg

bloomberg.com/news/2011-05-23/bank-of-america-410-million-overdraft-fee-accord-wins-tentative-approval.html

Reuters

reuters.com/article/2011/05/23/business-us-bankofamerica-overdraft-sett-idUKTRE74M63K20110523?type=companyNews

Los Angeles Times

latimesblogs.latimes.com/money_co/2011/05/bofa-overdraft-text-message.html

New York Times

nytimes.com/2011/05/19/opinion/19thu3.html