Citizens Bank settles excessive overdraft class action

Posted on: May 9th, 2012 by Steve Larson

Citizens Bank is the latest institution to settle a class-action lawsuit alleging that banks changed the order of customer payments to increase the amount they could collect in overdraft fees. The 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, agreed to pay $137.5 million to settle the lawsuit, which was transferred by the MDL panel to the Southern District federal court in Miami.  Citizens Bank admitted no wrongdoing in the settlement, which must be approved by the court.  Based in Providence, R.I., Citizens has 1,500 branches in states stretching from New England to the Midwest.

 The MDL proceedings in Miami involves dozens of 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.

Still, overdraft fees — and services that banks offer to help customers avoid them — are an area of concern for federal regulators.  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.