Overdraft Settlements Cost Banks A Small Fraction Of What's Netted In Fees

Publication: The Huffington Post

Author: Catherine New


02/07/2012 - When compared with the billions of dollars big banks have rung up in overdraft fees over the last decade, recent settlements with customers over unfair overdraft charges have amounted to little more than a slap on the wrist.

No different is JPMorgan Chase's tentative agreement, first reported Monday, to settle for $110 million a consumer case charging that it routinely reordered checking account transactions.

A spokesman from Chase said on Monday the bank was "pleased to have reached an agreement in principle." The settlement must still be approved by a U.S. district judge.

The practice of reordering transactions has in recent years become a major way for banks to charge customers additional overdraft fees -- typically from $25 to $35 per transaction. Banks rearranged transactions so that the biggest bills would be paid more quickly, causing accounts to drain quicker and leaving customers susceptible to multiple overdrafts on smaller purchases. Banks claim the practice helps customers pay their biggest bills first.

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Consumer advocates, including Pew Charitable Trusts, have called for a rule to ban the reordering of transactions, a practice that they say unfairly targets low-income customers. While nearly all banks have stopped processing transactions in this way, there is no rule to prevent them from restarting in the future.

"Any bank could reinstate this practice at any time," said Susan Weinstock, director of the Safe Checking in the Electronic Age Project at Pew. "That's why we are pushing the [Consumer Financial Protection Bureau] to write a rule that prohibits reordering that maximizes overdrafts."

As a result of new financial regulations, overdraft protection is now an optional rather than automatic service for customers with checking accounts. For the customers themselves, that's been a boon, helping them to avoid some excessive overdraft fees. For the banks, new overdraft rules have taken a bite out of company revenue, leading to attempts to charge for debit card usage or higher monthly maintenance fees.

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Read the full article, Overdraft Settlements Cost Banks A Small Fraction Of What's Netted In Fees, on the Huffington Post's Web site.

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