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.
"Chase made enormous profits from overdraft charges, much of it taken from Chase's most vulnerable customers," the class action said.The bank made $500 million every year in post-tax income from its practice of reordering transactions, American Banker previously reported.
"These penalties are one iota of what's been taken out of consumers' pockets," said Sally Greenberg, director of the National Consumer League, a nonprofit advocacy group representing consumers on marketplace and workplace issues. JPMorgan Chase and Bank of America are the two biggest banks ranked by assets to reach a settlement in a nationwide class action that has charged more than 30 institutions of reordering transactions.
JPMorgan Chase's proposed settlement comes just months after Bank of America finalized its agreement to pay customers $410 million to settle allegations of unfair fees. In Bank of America's case, that lump sum amounts to only 10 percent of the total earned by the bank from reordering transactions of more than 13 million customers over the last decade.
Union Bank and Associated Bank also agreed in November to customer settlements totaling $48 million, Bloomberg reported.
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.