Bank of America Reaches Debit Card Settlement - Other News

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Credit Card Applications » News » Other » Bank of America Reaches Debit Card Settlement

Bank of America Reaches Debit Card Settlement

Bank of America Reaches Debit Card Settlement
This content is not provided by Citi. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Citi.

Bank of America has recently established a 410-million dollar fund to settle a series of class-action lawsuits that involved them and several other lending institutions. These others included 24 in the U. S. and Canada, such as Chase, Wells Fargo and Citigroup. The suits were filed over a practice employed at the banks called “reordering,” which became popular at banks throughout the 2000s. “Reordering” is when a bank does not process debit cards transactions in the order in which they occur but rather in a batch from largest to smallest. That sometimes results in extra overdraft fees levied on the customer.

Banks claim they process debits from largest dollar amount to smallest for the customer’s benefit alone and cite this method of reasoning: the biggest debts to be deducted from someone’s account are typically payments going towards rent or a mortgage and should therefore be prioritized, and paid, first. The lawsuits argue that this system is, in fact, designed for the bank to make more money in fees. Most often targeted are those customers that are living strictly paycheck-to-paycheck. The suits also claim that the banks did not make it clear to customers ahead of time that they could opt to waive overdraft protection.

One such example: If one day there is four debits scheduled to post:

  • $700 rent payment (check)
  • $250 purchase (debit card)
  • $200 ATM withdrawal
  • $5 purchase (debit card)
  • that is the exact order in which the funds will be taken from the account, if “reordered.”

    If there is $800 in the account, the rent check will clear, but the other three transactions will each be hit with an overdraft fee.

    If, instead, the debits were processed from smallest to largest, the three smaller transactions would go through without the overdraft fees. The rent check would bounce, but the bounced check fee may cost the accountholder less in the long run, than three overdraft fees.

    Should there be less than $700 in the account, processing the same four payments from largest to smallest means that every single one of them will generate an individual fee. Processing them from smallest to largest means, again, only the bounced check will be hit with a fee.

    Banks were raking in roughly $39 billion in overdraft fees each year before the Federal Reserve intervened with these new rules last year. Now new regulations are in place which makes it mandatory for banks to obtain written permission from customers before enrolling them in overdraft protection programs.

    Bank of America is sending out postcards to their customers explaining the settlement and providing an address of a website with more information. Anyone who incurred overdraft fees between the span of January 2001 to May 2011 as a result of the bank’s overdraft procedure may be eligible to receive a portion of the settlement money.

    If the court approves the settlement in a hearing scheduled for Nov. 7, customers who are a part of the suit will automatically receive their share.

    Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
    All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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