Citizens Bank has become the latest institution to settle a class-action lawsuit over the banks changing the order of customer payments to increase the amount they could collect in overdraft fees. The overdraft fees are charged when customers, by writing checks or using debit cards, spend more than is available in their checking accounts. Citizens Bank, part of Citizens Financial Group and a unit of the Royal Bank of Scotland, will pay $137.5 million to settle the lawsuit. The settlement must be approved by the court. Based in Providence, R.I., Citizens has 1,500 branches in states stretching from New England all the way to the Midwest.
The lawsuit, filed in a Miami federal court, involves more than a dozen banks. Bank of America last year settled for $410 million, and JPMorgan Chase agreed in February to settle for $110 million. At issue in the litigation is the way in which banks process customer transactions. The suit contends that the banks reordered transactions to pay the largest amounts first — instead of in the order in which they actually occurred — so that overdraft fees piled up more quickly than they otherwise would have. Many banks have since abandoned the so-called “high-to-low” processing, in favor of processing transactions in chronological order. Nevertheless, overdraft fees — and services that banks offer to help customers avoid them — are still an area of concern for federal regulators.
The bank was accused of manipulating its customers’ debit card and ATM transactions in order to generate excess overdraft fee revenues for the bank. The lawsuit, part of multidistrict litigation involving more than 30 different banks entitled, is pending before U.S. District Judge James Lawrence King in Miami. The case is styled In re Checking Account Overdraft Litigation, case number 09-cv-02036. Citizens Bank is part of Citizens Financial Group which, through RBS Citizens, N.A. and Citizens Bank of Pennsylvania, operates more than 1,500 retail banking branches throughout the Northeast, the Mid-Atlantic and the Mid-West.
It is claimed in the lawsuit that Citizens Bank employed software programs designed to extract the greatest possible number of overdraft fees from its customers. It’s alleged that Citizens Bank re-sequenced its customers’ debit card and ATM transactions by posting them in highest-to-lowest dollar amount, rather than in the actual order in which the transactions were initiated by the customers and authorized by the bank. This internal bookkeeping practice resulted in Citizens’ customers being charged substantially more in overdraft fees than if their debit card and ATM transactions had been posted in the order in which they were authorized by the bank, according to allegations in the lawsuit.
The settlement with Citizens Bank is expected to be presented to the Court for approval later this year. Settlements with a number of other banks have been announced over the past six months. Bloomberg News recently reported that the new Consumer Financial Protection Bureau is looking at overdraft protection offered at nine large banks, to see if the rules governing the service need to be revised.
Robert C. Gilbert, a lawyer with Grossman Roth in Miami, serves as Plaintiffs’ Coordinating Counsel overseeing and managing all cases in this multidistrict litigation proceeding. In addition to Gilbert, the principal lawyers involved in the Citizens Bank case are Aaron Podhurst and Peter Prieto of Podhurst Orseck in Miami, and Ted Trief of Trief & Olk in New York. They have done very good work in this matter.
Source: New York Times and Lawyers USA online
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