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Bank Overdraft Fees Lawsuit & Settlements 2024 Update

Our lawyers are reviewing potential lawsuits for people who were billed excessive overdraft fees by banks and credit unions. Many of these institutions — Wells Fargo, Bank of America, TD Bank, and others — have been ordered to pay hundreds of millions in settlements to resolve allegations of unreasonably high overdraft fees.
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C.L. Mike Schmidt Published by C.L. Mike Schmidt
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If you or a loved one was charged overdraft fees for insufficient funds fees by a bank or credit union, you should contact our overdraft protection law firm immediately.

You may be entitled to compensation by filing a Bank Overdraft Fee Lawsuit and we can help. Please click the button below for a Free Confidential Case Evaluation or call us toll-free 24 hrs/day by dialing (866) 588-0600.

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What are Excessive Overdraft Fees?

Bank overdraft fees are withdrawn from a customer’s account when a payment or withdrawal exceeds the available balance, and the bank/credit union covers the same transaction as part of an overdraft coverage or overdraft privilege.

The problem is that in addition to covering the initial transaction, the institution also applies an overdraft fee, in some cases up to $30 or more, even when the money overdrawn is just a few dollars. Making matters worse, some financial institutions charge overdraft fees for each day the account balance is not brought up to $0.

What is Overdraft Protection?

According to a 2023 research from Investopedia, Overdraft protection is a service that prevents check, ATM, or debit card purchases from causing a user’s account balance in a financial institution to fall below zero, thereby triggering an overdraft fee or multiple non-sufficient funds fees [1].

Bank account holders must opt-in to receive overdraft protection before a bank can provide the service, as required by federal law; however, in 2016 alone, U.S. bank customers still paid approximately $15 billion in multiple fees.

Bank or Credit Union Overdraft Fees Law

U.S. federal law specifies that a bank cannot charge extended overdraft fees on debit purchases or ATM withdrawals unless the consumer agrees. A law that took effect in 2010 forbids banks and credit unions from charging unfair overdraft fees on transactions unless the bank customer agrees to “opt-in” to overdraft protection.

However, charges may still apply when checks or automatic bill payments overdraw an account, even when the customer declines overdraft protection.

There are still no laws regarding how much money banks charge for multiple overdraft fees, meaning customers who opt into the program can still pay unreasonable fees for overdraft transactions.

Related Article: Credit Union Overdraft Fees Lawsuit

Reordering Transactions

One tactic that banks are accused of using to increase their profits from overdraft fees is reordering transactions on accounts. That means that regardless of what order transactions occurred on a single day, some banks process the largest transactions first. That can lead to a lot of extra fees for a person to pay.

For example, say a man spends $10, $20, $50, and $100 (in that order) in 4 transactions on 1 day, having $140 in his account. Either way, the account will likely still go into overdraft. But, if the account is debited in the order the purchases occurred, then only the final transaction will result in an overdraft fee of $35.

However, if the transactions are processed from largest to smallest, then only the $100 purchase will be covered, leaving the customer to pay $35 for each of the final three transactions—for a total of $105 in charges.

Authorization Holds

Another practice that banks are alleged to have used to push customers into overdraft is authorization holds. Authorization holds occur between the time a bank card purchase is made and the time the merchant settles the transaction.

Before the merchant settling the transaction, the amount of the purchase is held, but it has not been withdrawn from the buyer’s account yet.

Once the merchant settles the account, which can occur a few days after the purchase is made, the funds are transferred to the merchant and the customer no longer has the money in his account.

Are Lawsuits Being Filed?

Bank overdraft fee lawsuits have been filed and/or settled in district court against banks including:

  • Wells Fargo
  • Bank of America
  • M&T Bank
  • HSBC
  • UMB Bank
  • Wachovia
  • And more

Overdraft Fee Class Action Settlements & Statistics

  • According to Reuters, in June 2019 – TD Bank paid $70 million to settle lawsuits for charging excessive fees [2].
  • As claimed by Reuters, in April 2019 – Navy Federal Credit Union paid nearly $25 million to settle a lawsuit for charging excessive overdraft fees [3].
  • November 2017 – Bank of America paid $67 million to settle a class action lawsuit accusing it of charging overdraft fees to customers who overdrew their bank accounts.
  • According to Jonathan Stempel’s research from 2013, in May 2013 – A California judge ordered Wells Fargo to pay $203 million to settle a class action filed against the bank for illegally processing debit card transactions to charge higher bank fees [4].

Among the eight larger individual banks, compared to the pre-pandemic 2019 baseline, there was a divergence of experiences in other listed fee revenue. However, there is no clear correlation between decreases in overdraft/NSF and increases in other listed fee revenue.

Across the first three quarters of 2022, combined overdraft/NSF revenue was $5.8 billion, compared to $8.6 billion across the first three quarters of 2019—a decrease of 33%. For the third quarter of 2022 alone, reported overdraft/NSF revenue was $1.8 billion, compared to $3.1 billion in the same quarter in 2019—a decrease of 43%.  Stated the Consumer Financial Protection Bureau.

Of the three banks with the most significant declines in overdraft/NSF fee revenue since 2019, Bank of America’s other listed fee revenue dropped 7.9%, while PNC’s increased 26.4% and U.S. Bank’s decreased 1.5%. In terms of dollar amounts, the declines in overdraft/NSF fee revenue across all eight banks for the first nine months of 2022 ($2.2 billion) far exceeded the net increase in listed fee revenue ($61 million).

Banks with $10 million to $50 million and banks with $50 million to $200 million in 2021 overdraft/NSF revenue on average reported less revenue from other listed fees than before the pandemic; in contrast, banks with $2 million to $10 million in 2021 overdraft/NSF revenue saw increases averaging 12.1%.

According to a 2023 study by the Consumer Financial Protection Bureau, across all reporting banks, other listed fee revenue decreased by $11 million from 2019 to 2022, even as overdraft/NSF fee revenue decreased by $2.8 billion [5].

Lawsuit Allegations

Bank overdraft lawsuits allege that banks charge excessive fees when customers overdraw their accounts. Plaintiffs further allege that banks and credit unions use deceptive overdraft practices to force their customers’ accounts into overdraft, including misrepresenting account balances and reordering debits and/or credits to accounts.

How Can Overdraft Fees Be Avoided?

The good news is that most overdraft fees are avoidable. Use the following tips to manage your accounts and prevent excessive overdraft fees by banks and credit unions:

  • Use direct deposit for your paycheck.
  • Keep track of your balances and transactions.
  • Keep a “pad” or cushion of money available in your checking accounts for unanticipated expenses.
  • Link your checking account to a line of credit, savings account, or credit card.
  • Find out if your bank will allow you to “opt out” of overdraft protection.
  • Ask your bank for a small line of credit that will cover you in the event of an overdraft.
  • See if your bank offers automatic notifications.
  • Change banks if your bank charges excessive overdraft fees or money for insufficient funds.

According to the American Bankers Association [6].

What Damages Could I Be Awarded?

If our lawyers determine that you have a legitimate claim against a bank or credit union for charging excessive overdraft fees, you may be eligible to receive compensation for:

  • Costs incurred
  • Refund of overdraft protection services
  • Damages related to Consumer Protection Act violations
  • Attorney fees
  • And more

Can I File a Class Action?

Although Schmidt & Clark, LLP, is a nationally recognized class action firm, we have decided against class action lawsuits when it comes to bank overdraft fee cases. Our lawyers feel that if there is a successful resolution to these cases, individual suits, not class actions will be the best way to get maximum payouts to our clients.

If you’ve been charged excessive fees for insufficient funds by a bank or credit union, we want to work with you personally to obtain the maximum compensation possible for your damages. Contact us today to learn more about your legal rights.

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The Finance and Insurance Litigation Group at Schmidt & Clark, LLP law firm is an experienced team of trial lawyers that focus on the representation of plaintiffs in Bank overdraft fees lawsuits. We are handling individual litigation nationwide and currently accepting new cases in all 50 states.



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