On March 2, an international bank agreed to pay $30 million to settle allegations that it changed the order in which customers’ debit transactions cleared in order to generate additional overdraft fees. According to the plaintiffs, the bank engaged in a practice known as “high-to-low” posting, whereby a bank orders transactions from the largest to the smallest dollar amount before posting them to the customer’s account. The bank also charged a $35 fee for each overdraft, regardless of the amount of the transaction. The plaintiffs allege that, when combined, these practices increased the number of overdraft fees paid by some customers because processing the largest charges first depleted their funds more quickly and increased the total number of transactions that failed to clear. The bank appropriately defended its practices, contending, among other things, that the claims were preempted by the National Bank Act and barred by the Uniform Commercial Code, and that the deposit agreement provided for discretion to order transactions. The settlement is scheduled to face a fairness hearing and final approval by the court.
OCC Revises Guidance Regarding Consumer Protection Requirements to Overdraft Lines and Protection Services
As previously reported in our March 11 Special Alert Update, on March 6, 2015, the OCC issued its revised “Deposit-Related Credit” booklet (“DRC booklet”) of the Comptroller’s Handbook, which replaced the “Deposit-Related Consumer Credit” booklet issued on February 11, 2015 (previously covered in this Special Alert). While the new booklet covers the same products – check credit (overdraft lines of credit, cash reserves, and special drafts), overdraft protection services, and deposit advances – the OCC made significant amendments to scale back the provisions of the prior version. Specifically, the new DRC booklet no longer contains supervisory principles that could be read to require that banks provide substantive consumer protections that are not currently required by the applicable consumer protection regulations. Read more…
On an appeal of five putative class actions alleging the unlawful charging of overdraft fees on consumer checking accounts, On February 10, the U.S. Court of Appeals for the Eleventh Circuit vacated a lower court order holding that the defendant’s waiver of its right to compel arbitration with the named plaintiffs precludes the Bank from compelling arbitration with any unnamed members of the putative classes. In re Checking Account Overdraft Litigation, No. 13-12082 (11th Cir. Feb. 10, 2015). The panel held that the lower court lacked jurisdiction to resolve the question. Additionally, it held that the named plaintiffs lacked standing, under Article III of the U.S. Constitution, to advance claims on behalf of those unnamed putative class members, who—in the absence of class certification—have “no justiciable controversy” with the Bank.
On February 20, the OCC announced that it would be removing the “Deposited-Related Consumer Credit” booklet, originally issued on February 11, from its website. The OCC’s February 11 booklet seemingly required banks to change overdraft protection services, however the agency has since stated that the booklet was not intended to establish new policy. According to the OCC’s website, the agency will “[revise] the booklet to clarify and restate the existing law, rules, and policy.” When the OCC releases its amended version of the booklet, we will update the February 16 Special Alert to reflect the agency’s modifications.
On January 6, a large national bank filed a motion to dismiss a suit alleging it charged improper overdraft fees. Filed last year in the Central District of California, the suit claims the bank violated federal and state laws – the EFTA and California’s unfair competition law – by posting customers’ larger debit transactions first, causing customer accounts to deplete faster resulting in more overdraft fees. In its motion, the bank claims it voluntarily stopped charging overdraft fees for one-time debit card transactions and most ATM withdrawals prior to the effective date of the amended regulations. The bank also argues that state law claims regarding good faith practices are preempted by the federal National Banking Act (NBA). The matter is scheduled to be heard on March 3. Stanionis et al v. Bank of America, No. 14-cv-2222