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JPMorgan Chase will stop charging customers overdraft fees for transactions under $5, as part of its efforts to settle a class-action lawsuit about its overdraft practices.
June 26 -
BancorpSouth quietly cut a deal in Arkansas that could undercut Florida claims in the overdraft case and save it millions. A federal judge is not amused.
June 6 -
PNC Financial Services Group (PNC) has agreed to pay $90 million to settle a class-action lawsuit relating to its overdraft protection practices.
June 26
Sovereign Bank defeated an overdraft fee lawsuit in Florida federal court on Thursday, making it the only bank to successfully argue its overdraft practices were sanctioned by federal regulators.
That distinction is likely worth eight figures, given the settlements recently inked by similarly sized banks in a massive multi-district class action suit launched several years ago.
Through expansive assertion of its own authority to trump state law, the OTS provided the institutions it supervised with a much stronger defense than that available to banks regulated by the Office of the Comptroller of the Currency.
"It seems kind of ironic that a savings bank could claim more protection against a consumer lawsuit than a regular bank," says Bruce Rogow, a senior attorney on the Florida plaintiffs' executive committee. "But Sovereign's just a different cat."
The OTS was disbanded following the financial crisis amid controversy over the necessity of numerous regulators and whether the agency had been excessively deferential to banks.
Sovereign, a unit of Spain's Banco Santander, did not respond to a request to discuss the case, and its lead attorney — Darryl May of Ballard Spahr Andrews & Ingersoll — declined to comment for this story.
The Florida case revolves around banks' manipulation of the order of debit card transactions. Over the course of a decade, most major banks adopted "high to low" processing, meaning that at the end of each day they applied the largest debits from a customer's account first. By reordering the sequence of the payments, banks accelerated the depletion of customer accounts, thereby increasing the number of overdraft fees they could charge.
High-to-low processing increased bank earnings by many billions of dollars. But over the last year and a half, more than a dozen defendants in the consolidated case have reached settlements in which they pay back amounts ranging from under 10% to more than 60% of those gains.
Essential to Sovereign's win was its former status as an Office of Thrift Supervision-regulated institution. Because the OTS had long asserted that its authority inherently trumped state consumer protection laws in the regulation of deposit-taking institutions, the judge ruled, the plaintiffs could not pursue claims against Sovereign under Maryland law. The OTS's broad assertion of its own regulatory authority is what is known as "field preemption."
The dozens of other banks in the case were unable to win on preemption arguments because they have long been regulated by the Office of the Comptroller of the Currency. While the OCC also has the ability to trump state law, it chose to assert that authority only in instances where state laws contravened its own rulemaking. This form of preemption, known as "conflict preemption," is significantly weaker than the sort that the OTS championed.
Judge King has routinely struck down preemption defenses raised by OCC-regulated banks, finding that the OCC's rules did not expressly allow the banks to design programs meant to extract excessive fees or mislead their customers. But because of the OTS' broader assertion of its authority, King ruled, banks acting according to its regulation had more latitude.
"The issue presented to the Court is whether the OTS occupies the entire field of deposit-related activity, thereby preempting the state law claims asserted by Plaintiff," King wrote in an opinion dismissing the Sovereign case with prejudice.
A few other banks, such as BB&T and SunTrust, have recently escaped the class action suit on different grounds, winning arguments that their disputes with customers should be settled under arbitration mandated in their checking account contracts.