National City Bank Loses Class Action Lawsuit Against Improper Overdraft Fees

By Kenneth Long on January 17, 2011

When PNC bought National City Bank, the sale included a little excess baggage they would rather not have brought aboard. It seems that the bank put through debit card transactions in an order that served to maximize overdrafts.

This has actually been a pretty common practice among major banks. They take all of the transactions that you had in a day, and they order them from largest to smallest so that there is a much higher likelihood that an overdraft would result in multiple fees rather than just one.

Judge John Bates however found that this case was a little bit different. He found that National City Bank provided false information about account balances, which would make it easier for clients to inadvertantly overdraft their accounts. He ruled that some purchases may not have been made had they realized how close to an overdraft they really were. Several major U.S. banks similarly excluded scheduled transactions closing that day from the day's balance, thereby artificially inflating the reported balance.

His ruling is in favor of the plaintiffs in the amount of $12 million. His ruling states that former National City Bank customers may receive refunds of $36 for every overdraft fee they were charged over the course of any two months. Customers may select two months in which they incurred the highest number of overdraft fees, and the months do not have to be consecutive.

This may be a major headache to PNC, since it would require going back through transactions dating as early as July 2004 and through August 2010. The real winners of course will be the lawyers who will receive much of the award and consumer advocates who fight for clarity and fairness in bank fees.

Poll: How much was your refund in the National City Bank class action settlement for Overdraft Fees? Less than $10   3 $10 to $19.99   1 $20 to $29.99   1 $30 or more   15

The ruling is not final until a June 13, 2011 hearing to ensure the fairness of the ruling.

Debtors Unite notes that while this may be a minor ruling for PNC, it could set a particularly troubling precedent for major U.S. banks who are fighting their own battles over debit card overdraft fees. Most major banks failed to deduct online bill pay transactions from that day's available balance even though the transaction had already been scheduled and in some cases completed. The result was an artificially inflated account balance that could lead to additional overdraft fees. Most banks ended that practice in late 2010.

Bank of America ended overdraft fees on debit cards in March 2010. All banks were prohibited from automatically enrolling customers into debit card overdraft "protection", and most began implementing the changes a few months prior to the deadline.

One thing is for certain: lawyers are salivating over other potential class action cases against most of the leading banks over debit card fees. It is unlikely that the National City Bank ruling will be the last on the subject.

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Note: Citi is the first major U.S. bank to announce a change in overdraft policy in which a low to high order of payment will be followed, thereby minimizing overdraft charges incurred.

Image courtesy of John Slaughterbeck.