This week’s issue of CityBeat
features an article about a lawsuit
that a disgruntled customer filed against Fifth Third Bank about how the institution processes debit card transactions.
Dennis Charlton was angered when Fifth Third re-sequenced his debit card transactions made over a weekend last April so that, instead of having a single overdraft that would involve a $33 fee, he had six fees totaling $198.
Charlton’s lawsuit in U.S. District Court, which is seeking class-action certification, alleges 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 isn’t the only person questioning the practice — so are federal bank regulators.
The Federal Deposit Insurance Corp. (FDIC) recently released a detailed study of bank overdraft programs. The report highlights key findings about the growing business of automated overdraft protection programs, enrollment practices, credit limits, fees and more at various U.S. banks and credit unions.
Among its findings, the report also highlights practices that the FDIC says harm customers, particularly young people and those in low-income areas. One of those practices is the systematic practice of re-sequencing electronic debit transactions so it results in excessive overdraft fees to customers.
An 18-month survey of banks by the FDIC found they made about $1.97 billion in overdraft-related fees in 2006, accounting for 74 percent of the overall $2.66 billion in service charges on deposit accounts.
The FDIC report found that larger banks are more likely to process transactions from largest to smallest dollar amount, so more overdraft fees can be imposed on customers.
Overall, fees related to overdrafts amount to $17.5 billion annually for banks, according to the Center for Responsible Lending.
Steve Berman, a Seattle attorney who specializes in banking industry issues, has filed a similar class-action lawsuit against Wells Fargo Bank.
On his Class Action Blog
, Berman writes, “Our concern is the average consumer does not know about the different overdraft programs at their bank and cannot feasibly protect themselves from potential schemes.
“Take a good look at the demographic these overdraft programs affect — low-income and young consumers,” he adds. “This group is traditionally composed of repeat offenders. What is truly unsavory in my opinion is that these banks will target repeat offenders time after time for overdraft fees that they can ill afford.”
Berman continues, “Even more frustrating is that the report indicates 81 percent of banks operating automated overdraft programs allow overdrafts to take place at ATMs and at point-of-sale locations or through debit transactions. Most of these banks only notify customers of insufficient funds after the transaction is already done. Now you, the customer, are overdrawn and owe the bank $27, on average.
To add insult to injury, the bank knew you didn't have the money but wanted the fee, so they let the transaction process.”
For more on the issue, click here