"Posting large items first has been done before and is very painful to customers," wrote Charlie Pedersen, who oversaw the bank's processing operations, shortly after the high-to-low processing policy was proposed. "So go forward into the night, but keep the headlights on."
Pedersen, who has since retired, did not return a call from American Banker.
"We should … burn all our documentation that [says the only purpose of reordering payment] posting sequence = more fees," an employee wrote in an exchange cited by class action attorneys.
Union Bank's venture into high-to-low processing began in 2002, when it retained CAST, a consulting firm headed by Steve McCollum, a former Citigroup banker. CAST promotes itself on its website as an expert in "revenue optimization" based on a "database of proven revenue enhancement practices." Its clients include Citibank, Wells Fargo, U.S. Bank and more than a dozen large regional banks.
Union Bank brought in CAST with a mandate to leave "no stone unturned, particularly in the fee-income area," according to a document cited in an amended complaint but not yet available through Federal court records.
CAST turned to overdraft processing. The tweak required is conceptually simple: By deducting a customer's largest payments first, the bank increases the likelihood that his or her account will incur multiple overdrafts.
The order in which the transactions are processed can have a big influence on fees charged. Assume, for example, that a customer has $100 in his checking account and engages in four debit card transactions over the course of a day — three for $10 and a final one for $110. Processing the small transactions first will result in a single overdraft charge, while putting through the large transaction first will result in four overdraft fees.
A system of putting through the transactions in whatever order maximized fees would in the first year boost Union Bank's overdraft revenue by $18 million, or nearly 25%, CAST estimated. CAST also recommended raising the charge per overdraft and sought one-fifth of all additional revenue.
Some Union Bank executives balked. "Well, as a UBOC shareholder [and a consumer] I would STRONGLY disagree with the high-to-low approach," William Christensen, the bank's executive vice president for item processing, wrote to colleagues in a 2003 email released by the court. "I don't believe that UBOC [Union Bank] has ever done this before … I don't think the bank ought to do anything that encourages a class action lawsuit right now."
Email messages indicate that other executives also opposed a switch to high-to-low debit card processing, and the idea appears to have languished for a while. But in May of 2003, with Union Bank apparently scrounging to make its numbers, its chief marketing officer, Gretta Ryan, raised high-to-low again.
"CAST seems to believe it had seven-figure opportunities and given we are drifting way behind budget I'd like to see if this was ever implemented," Ryan said in a May 21, 2003 email. In a followup email a month later, she acknowleged her colleagues' distaste for high to low but advocated moving forward anyway. "We are not taking any of these concerns lightly but obviously with $1.0mm a month at stake we want to try to work them through to … let the risks be weighted against the rewards," Ryan wrote in an email to colleagues that is disclosed in the Florida class action.
Ryan is still with the bank but did not respond to an email seeking comment. She also appears to have felt pressure to brush aside employees' qualms about highest-to-lowest processing from the fact CAST was portraying bank competitors as forging ahead.
"Everyday [CAST employees] email me with another Bank's practices," she wrote. "5th 3rd [Fifth Third Bank] switched to high to low posting order and according to CAST, they have never looked back."
Neither would Union Bank. In the summer of 2003, it established a "High to Low Implementation Team" in cooperation with CAST. In the first year, overdraft revenue jumped far more than expected — by $33 million to a total of $125 million.
Customer complaints finally led 2009 to suggestions by employees that Union Bank reverse its high-to-low processing.
"There is considerable pain around overdrafts in general," Chief Administrative Officer Linda Odenath wrote to colleagues in 2009, citing high-to-low processing as problematic. Once a customer is overdrafted "it is hard to catch up," she added.
Despite such concerns, Union Bank did not reverse its policy on debit card transactions for another year, by which time it was embroiled in the multidistrict litigation.
"While I have always had a philosophical problem with paying high to low, I suspect the loss of income would be significant if we were to change at this time," senior vice president Mark Woods wrote to colleagues.
Woods also did not respond to a request seeking comment.