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Monday, June 24, 2024 | Back issues
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Regional Bank Settles Overdraft Issue for $2.5M

(CN) - A New York bank will pay $2.5 million to thousands of consumers who accused it of strategically charging excessive overdraft fees, a federal judge ruled.

The settlement that U.S. District Judge Robert Mariani granted final approval last week stems from a class action William and April Johnson filed last year in Scranton, Pa.

They claimed that Community Bank NA and its Pennsylvania-based subsidiary, First Liberty Bank and Trust, reordered customer debit card transactions so as to jack up overdraft fees.

Rather than deduct transactions chronologically, the bank would deduct costlier charges first, sometimes leading to multiple overdraft fees, according to the complaint.

For example, if a customer made ten $10 deductions from a $100 account, and then a $101 deduction, the bank would re-sequence the order of the transactions to deduct the $101 first, thereby immediately overdrawing the account, the complaint states.

Although only the $101 charge should incur a fee, Community Bank would make sure to charge fees on each of the $10 expenses as well, the plaintiffs claimed.

After one day of mediation this January, the parties reached a $2.5 million settlement agreement that they signed on March 2.

The settlement class, which was certified in June, includes about 50,000 Community Bank customers whose accounts incurred overdraft fees as a result of "debit re-sequencing" between July 20, 2006 and Aug. 15, 2010.

Community Bank will pay all distributions to class members, $5,000 service awards to each named plaintiff, and attorneys' fees and costs, according to the settlement.

The bank also agreed for at least the next two years to use either a low-to-high or a chronological posting order for debit card charges, charge no more than four overdraft fees per account per day, and stop charging overdraft fees for accounts overdrawn by less than $5.

Judge Mariani noted no class member has objected to the settlement, and only five have opted out.

"The litigation in this case could be very complex, expensive, and protracted, even compared to other class actions, which are known to exhibit such qualities," Mariani wrote. "The case involves approximately 50,000 class members contesting an area of financial regulatory law that, as discussed below, is unclear and in the process of development. Plaintiffs testify that, if this case were to proceed to trial, they would need to retain data analysts and experts in the fields of marketing and banking. The court finds such testimony credible, as the issue of how banks structure their debit card transactions - and why they chose one structure over others - is well outside the knowledge of the average lay juror. Moreover, as discussed below, the plaintiffs have already spent nearly $23,000 on retained experts, despite the fact that this case settled in the very early stages of litigation."

Absent settlement, establishing liability and damages will be difficult, the ruling states.

"At the outset, there are the inherent risks and uncertainties that any plaintiff faces in litigating a case all the way through trial and appeal," Mariani wrote. "But even aside from that, defendants could and did rely on substantial legal arguments to prevent plaintiffs' recovery."

Those arguments included a claim that the bank had long since disclosed its debit resequencing practice to the plaintiffs, and that, in the recent case of Gutierrez v. Wells Fargo Bank N.A., the 9th Circuit found that the National Bank Act pre-empted state law attempts to regulate the posting order of debit card transactions, according to the ruling.

The judge declined to rule on the merits of those claims at this time, however, and approved the plaintiffs' application for awards, fees, and costs.

The bank's parent, Community Bank System Inc., reported $35.9 million in revenues last year.

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