“Talk is cheap until you hire a
lawyer.” Unknown
Our old friends at the federal Consumer
Financial Protection Bureau (“CFPB”) have just published a comprehensive study
of bank overdraft programs. It is
scholarly, well researched and boring as Hell.
The Report is 72 pages long and is study of a “small set of large banks”
within CFPB’s jurisdictional size (over $10 billion in assets). The study includes NSF fees. The size of the average overdraft and NSF at
the study banks is surprisingly high: $225 for accounts with at least one
overdraft. The study also included the effect of the Regulation E amendment of 2009
that required a customer to opt-in for ATM and POS debit card transactions.
Surprisingly, the study came to no
conclusions about the methods or procedures used in charging overdraft
fees. But the report ominously warned
that the heavy overdraft fees incurred by some customers and “wide variations”
among studied institutions merit further analysis.
The CFPB study confirms that overdraft
and NSF fees contribute a significant portion of fee revenue generated by
banks. The CFPB report states that a
trade association found that 61% of fee revenue is generated by overdraft and
NSF fees on checking accounts at the banks studied. The fees also account for 37% of the total
deposit service charges. It is little
wonder that overdraft and NSF fees are important to banks.
The CFPB report is long and detailed
and it discusses every facet of bank processing of checks and charges. However, amid the tedious detail of overdraft
operations, the key factor in any overdraft procedure is in what order a
customer’s checks and charges are recorded and charged against the customer’s
account. The study reports in detail the
ways in which the study banks charge the overdraft and NSF fees. But in essence the study reports three ways
banks can charge checks and ATM/debit card against a customer’s account: (1)
charge the largest item first, which has the effect of depleting the customer’s
bank account of funds before smaller items are charged; (2) charge the items
chronologically, as they occur; and (3) charge the smallest item first—usually
done when a bank processes ATM and debit card transactions first.
However, any bank that charges the
largest item first is risking legal and perhaps, long term, regulatory
intervention. Recently class action
attorneys have filed lawsuits against most of the nation’s major banks seeking
to have the banks repay customers for overdraft fees charged on the largest
item first instead of charging items as the occur. The legal theory is that the
practice violates unfair trade practice or other similar laws. New Mexico has an
Unfair Trade Practices Act, which is almost identical to the uniform act
existing in most states.
Most of the lawsuits have been settled
for sizable amounts but many are still subject to approval of the courts
hearing the cases. A list of some of the
banks and settlements follows: Bank of America $410 million; Citizens Bank
(part of RBS) $137.5 million; J.P. Morgan Chase $110 million; and TD Bank $62
million. Wells Fargo was ordered to pay
$203 million to California customers, but is appealing. There is also a major class action case
pending in Florida against 20 of the nation’s largest banks—including Wells
Fargo. Amusingly, in the Bank of America
case some of the class members are complaining that the class action lawyers
are profiting to their detriment—and many of them complain that they are
getting much less than the overdraft fees charged to them. In the settlements the banks have agreed to
cease the practice of charging the larger items first and move to a
chronological basis.
Class action lawyers are looking for
clients to sue other big national or regional banks. Other than big banks
already sued in other states, it is unlikely that many (if any) New Mexico bank
is large enough to merit a class action lawyer’s target bottom line—although I
usually have been proven wrong in predicting the behavior of my fellow
attorneys.
Word comes from the ABA that the
Uniform Law Commission, drafter of the Uniform Commercial Code, is working on a
model “Home Foreclosure Protection Act”.
It is still in debate stages, but it reportedly has broad mediation
provisions and other sections that will materially change the rights of the
parties in foreclosure actions. Should
it materialize in its present radical form, it still has to pass the
legislatures of the various states.
However, it would make the task of changing the foreclosure process
easier for those who oppose the present system.
In the wake of the leak of the NSA
secrets, I was tempted to cover the increasing risks that all business has of
damaging hacking and intrusion and the insurance solutions, if any. But that will wait.
Do
good.
MARSHALL
G MARTIN
Comeau,
Maldegen, Templeman & Indall, LLP
505-228-8506
(cell)
505-982-4611
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