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Overboard on Overdrafts?

Lawsuit against Fifth Third Bank’s debit card fees could impact all customers

By Kevin Osborne · December 3rd, 2008 · News
Borrowing a line from the old movie Network, Dennis Charlton was mad as hell and he wasn’t going to take it anymore.

Instead of opening up a window and yelling, though, Charlton is taking one of Greater Cincinnati’s largest corporations to court in a legal showdown that potentially could affect thousands of local banking customers.

Facing a weekend full of errands and shopping last spring, Carlton knew he had $428.98 in his checking account, which was enough to cover all he needed to accomplish — or was pretty close.

On a Saturday afternoon in April, Charlton paid for five small transactions using his debit card, totaling $56.39. The next afternoon, on a Sunday, he decided to buy some clothes at a local shop that sells business suits and spent $421.88 using the card.

When he saw his bill, Charlton realized he probably exceeded his account balance by $49.29 and figured Fifth Third Bank, the card’s issuer, would charge him a single $33 overdraft fee, which he was willing to absorb for the sake of convenience.

On Monday, no activity occurred on Charlton’s account and he didn’t receive a notice from Fifth Third regarding the overdraft from the previous day. On Tuesday, however, the bank processed four transactions, beginning with the largest purchase from Sunday although it was the last item received by the bank.

The next day, on Wednesday, an overdraft fee of $132 was assessed against Charlton’s account for the first time. The fee represented a $33 charge for each of the four items that were posted to his account Tuesday and were for purchases made on Saturday, when his account had sufficient funds for all five purchases.

To make matters worse, the bank processed two remaining items. As a result, on Thursday, Charlton was assessed an additional $66 in overdraft fees for the two items that Fifth Third had held.

In all, Charlton ended up paying six overdraft fees totaling $198 even though his account should have been overdrawn just once if the transactions had been processed in the order they were made.

That didn’t seem fair, Charlton thought. More importantly, he decided, it didn’t comply with the written policies that Fifth Third gives to customers along with their debit cards.

Under Fifth Third’s overdraft protection plan, customers who use debit cards for transactions that require payment in excess of the amount of cash in a checking account would have those transactions paid in full up to a pre-determined limit, with certain fees assessed for each transaction in which the overdraft protection was used.

According to the bank’s disclosure statement that it provides to customers, such fees would be imposed only for actual overdraft transactions.

In reality, Fifth Third bundles together transactions and reorders their sequence in an effort to maximize fees and increase profits without disclosing that practice upfront to customers, Charlton concluded. That’s when he decided to contact a lawyer.

Charlton filed a class-action lawsuit Oct. 9 against Fifth Third on behalf of all of its debit card customers. In the suit filed in Hamilton County Common Pleas Court, he alleges the bank engages in deceptive business practices that constitute a breach of contract with customers.

“We think, in terms of the way they disclosed it, Fifth Third can’t do what it’s doing,” says Richard S. Wayne, Charlton’s attorney.

Debit card transactions are different than purchases made by check, Wayne adds, and shouldn’t legitimately involve any delays in posting to accounts.

“Presumably, because it’s all computerized, when you use a debit card it goes directly into your account and drags the money out,” Wayne says.

Fifth Third successfully pushed to have Charlton’s suit moved to U.S. District Court, but Wayne has filed a motion to return it to the lower court. Both sides are waiting on that decision as well as another decision about whether the suit will be granted class-action status.

Such lawsuits usually take between 12 to 18 months to reach trial, legal experts say. Fifth Third serves more than 5.8 million customers, a large portion of whom use debit cards and could be affected by the outcome.

Fifth Third declined comment on the lawsuit.

“We do not comment on matters of active litigation,” says Debra DeCourcy, a company spokeswoman.
Fifth Third operates more than 1,300 locations in Ohio, Kentucky, Indiana, Florida, Georgia, Illinois, Michigan, Missouri, North Carolina, Pennsylvania, Tennessee and West Virginia.

The bank is among the largest money managers in the Midwest and has $196 billion in assets under its care, managing about $30 billion for individuals, corporations and not-for-profit organizations.

For fiscal year 2007, Fifth Third reported revenues of $8.49 billion and net income of $1.07 billion.
Under Fifth Third’s overdraft protection plan, each time the service is activated a fee is charged to the customer’s checking account. The bank adjusts these fees based on prior 12-month usage of the overdraft protection service, with fees assessed at a rate of $9 per transfer for one to10 uses, $15 per transfer for 11-20 uses and $20 per transfer for 21 or more uses.

The rate structure provides Fifth Third an incentive to maximize the number of times a customer’s overdraft protection service is activated, according to the lawsuit. The bank also imposes overdraft charges of $33 per overdraft even though industry sources report that the actual cost to process overdraft checks is only 50 cents to $1 per check.

“It is reasonable to infer that the cost of processing overdraft debit card charges is even less,” the lawsuit states. “Thus, the fee imposed by Fifth Third is at least 22 to 66 times Fifth Third’s actual cost for each debit card overdraft.”

The lawsuit alleges that Fifth Third utilizes a computerized program that, instead of paying debit charges in the order in which they’re presented or incurred, reconfigures or reorders the charges incurred during a multi-day period and automatically pays the largest ones first.

“By intent and design, Fifth Third’s automated program does this solely so that the total number of overdraft transactions are maximized and, therefore, Fifth Third can charge its overdraft fees with respect to as many such transactions as possible and thereby maximize its revenue and profits, all to its substantial benefit and the substantial detriment of its customers,” the lawsuit states.

The practice of charging fees for bounced checks is a multi-billion dollar business.

A 1998 report by the Consumer Federation of America reported that such fees generated $5.2 billion in revenue annually. More recent estimates for 2003 reported by the Consumer Federation of America puts this figure at $30 billion.

If Charlton’s lawsuit is successful, Fifth Third would have to stop re-sequencing its processing of debit card purchases or more fully disclose the practice to customers, along with possibly paying punitive damages to those who’ve paid such fees in the past.

“Potentially thousands of people could be affected,” Wayne says. “We certainly want to see the sequencing stopped and the class compensated for their losses.”



12.03.2008 at 09:16 Reply
Okay, seriously, this isn't news, unless you count the fact that some idiot lawyer actually took this case on. Come on people, go to ANY bank: US Bank, Nat City, 5/3, PNC, People's, etc and ask for a copy of their Rules and Regulations. They spend millions having their own lawyers poor over their rules and regulations ensuring there are no legal loopholes that could get them in trouble. And every bank that I asked a copy from all had just about the same things in there. Guess what, they can do just about anything they want. All banks have the right to refuse any deposit for any reason, the right to close your account for any reason, the right to close your debit card for any reason, and the right to charge overdraft fees. But, since this guy has an account at 5/3 I did some investigating. According to a copy of the Rules and Regulations (the copy I got from a local branch said March 2008 edition) has an interesting sentence on page 5. Page 5 reads that the Bank may choose at any time the order in which items are deducted from the account, including the largest items first, which may include your mortgage, rent or car payment. It literally says they can put the items through largest to smallest. When you sign a banks signature card, it basically says you agree to the terms and conditions or rules and regulations. Sorry buddy....here's an idea, DONT OVERDRAW YOUR ACCOUNT IN THE FIRST PLACE! ~Smart enough NOT to pay ANY bank fees!


12.07.2008 at 08:05
You may be "smart enough NOT to pay ANY bank fees" but you may want to edit your comments before submitting. Perhaps you could pore over them.


01.13.2009 at 04:25
not sure why you want to call people names, however many people from First Charter never saw or signed a signature card from Fifth Third, and I paid my overdraft fee because they didn't give me my overdraft protection that I got with First Charter, and it was a cash deposit and later that night an online payment that sent me over - the payment to the overdraft was over paid - yes I had a credit and they charged me and sent nasty notices about that - 2 months later they figured out I should not be getting charged when they owe me the overpayment - but again calling people names is not helpful - and I am very happy for you that you don't have ill parents that drain your time and brain like myself or for those that are trying to pay bills without jobs because these very same banks that we tax payer are bailing out sent our jobs over seas - you are lucky not smart - if you were smart you would think thing out a little more and keep your name calling & nasty comments under wraps


12.04.2008 at 03:56 Reply
Exactly...this guy went over his limit....I'm sick of people that have this thought of credit/debit cards don't have to have any backing! DO NOT GO OVER YOU MORON! I HOPE YOU LOSE!


12.08.2008 at 05:41
What bank do you work for?


12.04.2008 at 03:50 Reply
Figured I be the first non bank employee to respond. The big banks are spending millions of dollors for employees to post their comments in defense of their outrageous policies. Well it won't work! The ATM/Debit card overdrafts charges are unfair. The card should be declined or at a minimum the customer should have a change to decline a purchase if they know it will cost them $33. This practice serves no purpose other than to rack up fees for the banks from people who can least afford it. It's a crime and every bank is being sued for this. As for the previous comments obviously posted by bank employees- get a real job!


12.05.2008 at 12:43 Reply
1st: $700 Billion Bailout for the largest banks in the US. I'm sure the small banks don't quality for this sellout, as many have already closed there doors. 2nd: 5/3 Bank, PNC Bank & National City Bank are 3 of the largest banks in the county and the most corrupt. As a business Owner who has dealt with many banks over the course of 22 years, this is the most illegal practice that is happening today in banking. 3rd: Because of these corrupt practices, our government is forced to regulate banking even more. Just check out the new laws which were created between 2002 & 2005. They talk about "Fair Banking Practices". 4th: Back in the day, folks use to like & trust bankers - not so much these days... 5th: I'm so glad City Beat is featuring a story about this, as I have a similar story to tell about National City Bank. Talk about corrupt. There's a reason the federal govt. recently turned them down for a small piece of the bailout. 6th: You never hear about this type of corruption in the Cincinnati Enquirer or any of the local community recorders (which is also owned by the Enquirer). 7th: How about the Chamber of Commerce? Unfortunately they are in the pockets of Big Banks. Every group & organization involved with the Chamber has members from the Big 3 banks representing it. It's no secret. 8th: I was a NK-Chamber member until recently - talk about negative representation. It's unfortunate that Chamber members as a whole are looked down upon, because of the Big Bank influence. 9th: Thank you again City Beat! I have already contacted my attornery and will be filing a class-action lawsuit in Kentucky against NCB. 10th: Because of the way banks are operating these days, many businesses are closing down and losing everything they have. 11th: Let's not forget why we're in this financial mess after all.... 12th: Is anyone out there interested in having the largest demonstration in our area - directed towards the shady practices of most large banks?


12.05.2008 at 05:36 Reply
The FDIC is concerned about this very same practice, and there's a West Coast lawsuit against Wells Fargo bank about it. Check this out. http://www.citybeat.com/cincinnati/blog-272-customers-revolt-against-banking-fees.html