In 2003, the San Francisco-based Union Bank adopted a new practice that allowed it to begin charging its customers more overdraft fees. Now, the customers are fighting back -- and they’re doing it en masse.
On Tuesday, a Florida federal judge ruled that customers who have been charged excessive overdraft fees can sue Union Bank as a class. A lawyer representing the customers says a class-action suit could involve hundreds of thousands of plaintiffs.
Here’s how Union Bank would manipulate its customer’s charges in order to generate more fees, according to the plaintiffs: Say you have $30 in your checking account. In the morning, you charge $5 on your debit card for coffee; in the afternoon, you charge $10 for a cab ride; and in the evening, you charge $30 for dinner.
Regardless of the order in which those charges actually happened, Union Bank would reorder them from largest to smallest on your statement. Ordinarily, you’d get charged one overdraft fee, but with Union processing your transactions out of order -- starting with the $30 dinner charge, then the $10 and $5 charges -- you’d get hit with three fees.
The court complaint against Union Bank charges that Union fails to notify customers when one of their transactions will trigger an overdraft fee; that it fails to let customers know they can opt out of this overdraft program, or refuses to allow them to do so; and that it charges "exorbitant overdraft fees that bear no relationship to the actual costs and risks of covering insufficient funds transactions."
The complaint also alleges that in 2002 or 2003, Union Bank hired a Los Angeles consulting firm to help it devise new ways to maximize its revenues from overdraft fees. In October 2003, according to the complaint, Union Bank circulated a document that described its plans to "post customer generated debits in the order of descending amount, regardless of trancode type. The objective is to charge fees on more items."
The consulting firm BerlinRosen provided The Huffington Post with a copy of the court complaint against Union. BerlinRosen is handling communications for the plaintiffs' lawyers in this case.
Union Bank is not the only financial institution that’s been accused of manipulating the order of transactions to ring up more overdraft fees. Earlier this year, Bank of America agreed to pay $410 million to settle its piece of a similar case, according to The New York Times. Last August, Wells Fargo was forced to pay $203 million to its customers after a judge ruled that its practice of “high-to-low resequencing” had led to a “bone-crushing multiplication of additional overdraft penalties,” the NYT reported.
The current case against Union Bank is consolidated with litigation against some 35 banks, including JP Morgan Chase, U.S. Bank, and BB&T Corp, all before the same judge in Florida, according to the Associated Press. Bank of America was included in this group before its settlement earlier this year. It’s not yet clear how the court will rule in the other cases, but Bruce Rogow, co-lead attorney for the plaintiffs, has said that the class certification for Union Bank customers could set a precedent for class-action suits across the board.
“All the banks will fall, ultimately,” Rogow is quoted as saying in The Washington Post.
An employee at Union bank told The Huffington Post that the company was not able to comment on the litigation at this time.
The Union Bank case is only the latest instance in which a bank has been accused of exploitative practices. Last week, the Center for Responsible Lending published a report indicating that some major banks are offering the equivalent of predatory payday loans that can trap customers in a cycle of debt.