If you qualify for the Bank of America overdraft lawsuit, you may have already received a postcard in the mail from the bank. Here is information on the overdraft lawsuit.
Like many banking institutions, Bank of America processes debit transactions not at the time they occur, but in a batch, from largest to smallest. If they don’t still take this approach currently, they did in 2009 when a class-action lawsuit combined several other legal actions. 24 other banks in the United States and Canada were named in the class-action lawsuit, including Citigroup, Chase, and Wells Fargo.
The banks say that by ordering debits from largest to smallest benefits customers. For example, mortgage or rent payments are generally the largest debits, so they should receive priority and should be the first to be paid. This is not how it works in practice, however. The system is designed to make more money in fees, particularly from the paycheck-to-paycheck class of customers.
For example, five debits may be scheduled to post on a Monday:
$800 mortgage payment (check)
$200 purchase at the grocery store (debit card)
$100 withdrawal at a different bank’s ATM
$25 purchase at the book store
$4 coffee
That’s the order the funds will be taken from this person’s account. If there is $900 in the bank account, the mortgage payment will be processed, but the four other transactions will generate overdraft fees, one for each, likely totaling more than $100. If the debits were processed from smallest to largest, only the mortgage payment would cause a problem, and the check will bounce. This could cost the account owner less money, but a bounced mortgage payment could be troublesome.
In the more likely event that there is only $500 in this checking account, ordering debits from largest to smallest ensures nothing will go through without generating a fee. However, ordering the debits from smallest to largest, only the mortgage payment would bounce, and there would be no overdraft.
Bank of America will be paying $410 million to settle the class-action lawsuit, which also notes that the banks did not tell customers they could waive overdraft protection, allowing certain transactions to fail rather than paying a fee.
Like many banking institutions, Bank of America processes debit transactions not at the time they occur, but in a batch, from largest to smallest. If they don’t still take this approach currently, they did in 2009 when a class-action lawsuit combined several other legal actions. 24 other banks in the United States and Canada were named in the class-action lawsuit, including Citigroup, Chase, and Wells Fargo.
The banks say that by ordering debits from largest to smallest benefits customers. For example, mortgage or rent payments are generally the largest debits, so they should receive priority and should be the first to be paid. This is not how it works in practice, however. The system is designed to make more money in fees, particularly from the paycheck-to-paycheck class of customers.
For example, five debits may be scheduled to post on a Monday:
$800 mortgage payment (check)
$200 purchase at the grocery store (debit card)
$100 withdrawal at a different bank’s ATM
$25 purchase at the book store
$4 coffee
That’s the order the funds will be taken from this person’s account. If there is $900 in the bank account, the mortgage payment will be processed, but the four other transactions will generate overdraft fees, one for each, likely totaling more than $100. If the debits were processed from smallest to largest, only the mortgage payment would cause a problem, and the check will bounce. This could cost the account owner less money, but a bounced mortgage payment could be troublesome.
In the more likely event that there is only $500 in this checking account, ordering debits from largest to smallest ensures nothing will go through without generating a fee. However, ordering the debits from smallest to largest, only the mortgage payment would bounce, and there would be no overdraft.
Bank of America will be paying $410 million to settle the class-action lawsuit, which also notes that the banks did not tell customers they could waive overdraft protection, allowing certain transactions to fail rather than paying a fee.
