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US Bancorp Overdraft Fee Settlement
By Archana Sabesan on June 12, 2012

USBancorp-(1).jpgThree years ago, banks such as Citigroup, U.S. Bancorp, Wells Fargo, and Capital One had been manipulating debit transactions to maximize overdraft fees and charge their customers extra. The banks listed above are a few amongst others that have not yet settled. A federal judge in San Francisco ordered Wells Fargo to pay $203 million to California customers who complained about overdraft fees, but the bank is appealing.
These lawsuits pretty much claimed that the banks were processing debit card transactions in order of highest to lowest dollar amount to maximize the number of overdraft fees. Instead of declining transactions when an account had insufficient funds to cover the purchase, the bank would authorize it and then would process them in highest to lowest dollar amount order. This can cause overdraft fees, usually around $25 to $35, to pile up since account balances drop faster when larger transactions are processed first.

The year after all this happened, the Federal Reserve banned banks from charging overdraft fees on electronic debit transactions without the customer's approval beforehand. U.S. Bancorp became one of the first national banks to significantly reduce their overdraft fees.

Bank of America stated that they were going to completely get rid of overdraft fees, and stop letting customers to overdraw their accounts. However, Bancorp used a different approach; while they will keep the overdraft protection plan, they agreed to lower the fees on smaller transactions. If you overdraft on a transaction of $20 or less, you will only get charged a $10 fee, whereas for a transaction of $20 or more, it would be $33.

BancorpSouth agreed to a $1.75 million settlement, with additional benefits, with customers who claimed they were wrongly charged overdraft fees. It joined other banks, such as Bank of America, JP Morgan Chase & Co., and Citizens Bank, which had previously reached settlements with their customers.

Since debit cards are something almost everyone uses, from a cup of coffee to paying for a hotel room, it became an easy target. These banks knew good and well that many people rely solely on their cards, and may sometimes even spend more than they actually have. And this, my friends, is where overdraft fees come into the picture so the banks used it to their advantage.
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