Judge OK’s Settlement for Unfair Overdraft Charges

(CN) - PNC Bank may be able to settle a class action over unfair overdraft fees for $12 million, a federal judge in Washington, D.C., ruled. A customer who is suing the bank over the same fees in a separate class action that is part of a Florida multidistrict litigation case tried to unravel the proposed settlement, but the D.C. judge rejected his arguments.

Clients of National City Bank, which merged into PNC in 2009, filed a class action for deceptive business practices in Washington on Feb. 17, 2010. They claimed the bank misled customers about their account balance, concealed its overdraft policies and "reorder[ed] electronic debit transactions from the highest dollar amount to lowest dollar amount so as to deplete the customer's available funds as quickly as possible while maximizing the number of overdraft fees collected," the latest order in the case states.

A couple of months after filing, the Washington court was ordered to transfer the case to the ongoing multidistrict litigation in Florida's southern district. Instead, the Washington plaintiffs struck a settlement with the bank and the Florida court vacated the transfer order.

Under the terms of the settlement, National City customers who held an account during the class period and "incurred at least one overdraft fee associated with at least one National City debit card transaction that was not previously reversed, refunded or returned" to them by the bank would be eligible for the class, U.S. District Judge John Bates wrote.

Under the $12 million settlement, class members in Washington would receive $36 for each eligible overdraft charge incurred during any two calendar months, not necessarily consecutive, between July 1, 2004, and August 15, 2010. The bank would also provide $500,000 to publish notice of the settlement, and administer it.

The plaintiffs say $12 million is 17 percent to 24 percent of the best possible recovery if the case went to trial.

Robert Matos, a former National City Bank customer who is the named plaintiff in one of the overlapping class actions, objected to the proposed Washington settlement, arguing that it might affect the multidistrict litigation.

Matos questioned the adequacy of a $12 million settlement in his objections, and Bates agreed that, in light of a recent similar overdrafts case against Wells Fargo that resulted in a $203 million judgment against the bank, the parties should justify how they reached the figure before he grants final approval.

Since the $12 million figure is "within the range of possible approval," however, Bates found it was sufficient for the preliminary approval stage and overruled Matos' objection.

Bates also rejected Matos' challenges to discovery in the case and the allegedly arbitrary settlement allocation procedure.

He noted that formal discovery was unnecessary and that the allocation proposal was perfectly fair.

"Limiting the recovery period to two months also prevents chronic overdrafters, who had notice of National City Bank's overdraft policies yet continued incurring overdraft fees anyway, from being unfairly rewarded for their behavior," the ruling states.

Bates also rejected the charge that the proposed settlement employed an "unnecessary and unduly burdensome" claims process. Matos had argued that the bank should be able to calculate and reimburse customers for their individual share of damages without requiring them to file a claim.

The judge also rejected allegations that the parties reached a hasty settlement to avoid transferring the case to Florida, and that the settlement will affect multidistrict litigation.

"The parties have repeatedly assured the court that the settlement was deliberately drafted to prevent releasing the claims of PNC customers who opened PNC accounts directly with PNC (rather than through the merger of National City Bank into PNC)," Bates wrote (parentheses in original).

Release of claims against PNC will only apply to claims based on accounts opened originally with National City and not affect the Florida litigation, Bates wrote.

The judge added that the proposed settlement is not ambiguous with regard to the agreement not to sue. That component of the settlement will not take effect until he grants final approval, the ruling states.

Bates granted approval of the settlement and class certification, but noted that he reserved the right to ultimately reject any part of the settlement.

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