JPMorgan to Pay $110 Million to Settle Overdraft Claims

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JPMorgan Chase & Co has come to a tentative agreement to pay $110 million to settle an overdraft fee class action, according to papers filed in federal court on Friday evening.
 
The case, brought in U.S. District Court for the Southern District of Florida, revolves around allegations that Chase and other banks manipulated the order in which they processed customers' transactions to maximize the account overdraft fees paid by debit card customers.
 
Plaintiffs accused Chase and more than 30 other banks of processing customers' debit card transactions in a way to wrongfully maximize overdraft fees. Specifically, the banks processed debit card transactions not in the order in which customers conducted them but instead from the highest-to-lowest transaction balances; the change allegedly caused customers to drain their accounts quickly and maximized the overdraft fees assessed against them.
 
"Chase made enormous profits from overdraft charges, much of it taken from Chase's most vulnerable customers," the class action claims. The bank generated $500 million a year in post-tax income from high-to-low re-sequencing, according to Chase's own analysis.
 
As cover for its actions, plaintiffs allege, Chase falsely maintained that it had chosen high-to-low processing because consumers requested it. The opposite was true — Chase logged almost 10,000 complaints monthly about its overdraft fees and re-sequencing, according to internal records of complaints.
 
The deal cut by Chase is only "a preliminary understanding," according to the filing. It is subject to additional negotiation and the approval of U.S. District Judge Lawrence King, who is overseeing dozens of consolidated overdraft cases from around the country.
 
"We are pleased to have reached an agreement in principle," a Chase spokesman wrote in an e-mail. Plaintiffs attorneys did not respond to a request for comment Friday night.
 
Defendants in the overdraft litigation have generally fared poorly. Bank of America last year became the first to come to an settlement, agreeing to pay more than $410 million, or around 10% of the overdraft fees it is alleged to have wrongfully charged. Subsequent settlements have recovered as much as 60% of estimated wrongful overdraft revenues. A dozen banks have either settled or are seeking to get settlements approved.
 
Chase's proposed settlement appears relatively favorable to the bank, given that the $110 offered is just 22% of its alleged earnings from wrongful overdraft fees. One factor that likely worked in Chase's favor was a mandatory arbitration clause in its consumer contracts. Judge King ruled that Chase had failed to assert its right to arbitration in a timely fashion, but the bank was in the process of appealing that ruling. A Chase victory in its appeal would likely have killed the class action entirely.
 
Elsewhere, banks are under pressure to restrain overdraft fees. Revenue from them fell by $3.6 billion to $29.5 billion in 2011, while the median fee customers paid per overdraft rose a record $2.50 to $30.
 
After a decade long run, banks have largely abandoned high-to-low debit processing under pressure from consumer advocates and regulators. Federal rules have restricted banks' ability to charge customers for overdrawing checking accounts, unless the customers "opt in" to programs that will cover their excess charges for a fee. At the same time, banks have had to overhaul some of their checking and debit-card operations to comply with other federal regulations.

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Comments (3)
Wells Fargo still does the reordering of the sequential debits, from large to small and when you complain they will tell it's just the way they do business and you are free to move your account to another bank. It's cocky and very arrogant when a bank bullies you into their ways to extract as much money as possible. I am sure they will never tell a large company they can move out if they are not happy with their re-sequencing. This is not illegal but surely is pretty immoral. It's the result of poorly designed regulations and a lack of understanding that our right to private property is being attacked when someone's purpose is to "take" as much money from you as possible. This is not a price for a product, it's a toll for our need to use banks.
Posted by mauriciott | Tuesday, February 07 2012 at 9:51AM ET
I got a measley $22 from this friggin' settlement. Thant crappy Chase bank made at least $800 off me for all those years, and I mean at least. This settlement is a joke!! Everyone who feels as I do, should pull their money out of Chase bank and any of its affiliates. That's what I am doing. I am beyond tight over this! The government lets the banks get away with ANYTHING. let you or I try to conduct business this way and we might as well burn our credit reports, but let the bank do it
and we get $22! I am also angry that the postcard I received about the settlement made it sound as if we would get most of the actual money back. Today, I go on a website and it says most people will get $25, minus a $3 fee to post the amount. I suspect Chase is getting back most of the Billions they supposedly put aside to pay back their customers. Even if they pay 2 million people $25, thats only 5 billion. They put aside over 300 billion to pay. No wonder companies agree to make settlements instead of going to court, so a Judge has to decide what is right.
Posted by define_one | Monday, May 20 2013 at 8:51PM ET
I got a measley $22 from this friggin' settlement. Thant crappy Chase bank made at least $800 off me for all those years, and I mean at least. This settlement is a joke!! Everyone who feels as I do, should pull their money out of Chase bank and any of its affiliates. That's what I am doing. I am beyond tight over this! The government lets the banks get away with ANYTHING. let you or I try to conduct business this way and we might as well burn our credit reports, but let the bank do it
and we get $22! I am also angry that the postcard I received about the settlement made it sound as if we would get most of the actual money back. Today, I go on a website and it says most people will get $25, minus a $3 fee to post the amount. I suspect Chase is getting back most of the Billions they supposedly put aside to pay back their customers. Even if they pay 2 million people $25, thats only 5 billion. They put aside over 300 billion to pay. No wonder companies agree to make settlements instead of going to court, so a Judge has to decide what is right.
Posted by define_one | Monday, May 20 2013 at 8:51PM ET
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