Justice? BofA antes up $410 million and it all started with a $38 cup of coffee
Wake up and good morning. Just got to weigh in on one of the most annoying (past) practices by banks of fee gouging based on overdrafts. Now banks finally are getting their own knuckles rapped and their own wallets pillaged. You may recall this sorry practice as "$38 cup of coffee" that happens when a consumer who mistimed the purchase of a $3 cup of coffee would find a $35 overdraft fee tacked on.
Bank of America would pay $410 million to settle its piece of a broad lawsuit involving excessive overdraft fees on debit cards in a deal tentatively approved Monday by a federal judge in Miami. The legal action against Bank of America is part of a class-action lawsuit on behalf of consumers. It accuses the nation’s banks of manipulating debit transactions to maximize the fees they could charge customers who exceeded the balance in their accounts, says the New York Times. Here's the entire story.
It's not just Bank of America. The bank just happens to be among the early defendant to settle in the case. About 30 defendants remain, including JPMorgan Chase, U.S. Bank, and Citibank. Other banks that have reached settlements on similar cases include Fifth Third Bancorp. And a federal judge in California ruled against Wells Fargo (which makes its offical debut in Florida next month when it swaps out Wachovia signs for its own). In other words, most of the big banks doing business in Florida are involved.
The BofA legal action sprang out of complaints like one filed by Ralph Tornes. The Florida man sued Bank of America for charging him about $500 in overdraft fees after the bank was suspected of rearranging the order in which it processed his purchases. In May 2008, Tornes said he had $195 in his account and made two debit purchases, for $8 and $13. The bank also processed a bill payment of $256. He claimed the bank had not processed the purchases in chronological order, but instead rearranged them from largest to smallest. The effect was that Tornes paid three $35 overdraft fees instead of one.
According to the Wall Street Journal story here, the Miami federal court settlement calls for the bank to put $410 million in an escrow account that will be divided among people who where charged overdraft fees because of checking-account or debit-card transactions as early as 2001. According to a court document, the attorneys' fees could be up to 30 percent of the settlement.
Critics say overdraft fees, which are typically $25 or $35, disproportionately burden customers with lower incomes or low account balances.
New federal regulations have forced the banks to change overdraft tactics on debit cards. But here's something Bank of America is testing, according to this Detroit Free Press story. "In what would be one of the more unusual pilot tests, Bank of America is considering trying to buzz some customers with a text message to say they can make a payment after all with that debit card -- if they agree on the spot to pay a $35 overdraft fee. Or you could avoid that $35 fee if you remember to put more money in your account by the end of the banking day at 8 p.m. at Bank of America ATMs."
I don't know if those options are much of a step up. But even that beats the $38 cup of java.
-- Robert Trigaux, Business Columnist, St. Petersburg Times