It seems like only yesterday that banks across the country were facing class action lawsuits for manipulating customers’ transaction orders to maximize overdraft fees. In those cases, companies including Bank of America, Citibank, Chase, Wells Fargo, and others were accused of shuffling people’s debit orders so that their accounts were overdrawn quicker than necessary – and charged the relevant overdraft fees.
Well, now it looks like there’s another scheme that consumers need to watch out for – the so-called extended overdraft fee (also called a sustained overdraft fee). It’s newer, but it’s already the subject of class action lawsuits claiming bank customers are unknowingly paying far more than they should – and far more than what is legal.
What’s Going On?
Extended or sustained overdraft fees are deceptively simple. When a customer overdraws their account, a standard overdraft fee is charged. Annoying, but perfectly legal, and something that’s generally understood to be part of having a bank account. However, what happens if your account stays overdrawn for a week, or 10 days, or longer? This is where “extended” fees come in.
If you stay in the red for an amount of time set by the bank (10 days, say), you may suddenly be slapped with this new fee. You don’t have to be more overdrawn than before – the fee is based purely on the length of time your account has remained overdrawn. Banks’ justification for the charge is unclear – unless you put it down to pure, naked greed – but one thing is clear: a lot of people are unhappy, and many think these fees are actually illegal. Bank of America and JPMorgan Chase have already been sued for their extended overdraft fees – and more lawsuits look set to follow.
So Why Are Banks Facing Lawsuits?
The National Bank Act is a federal law that helps govern the national banking system. Under the Act, banks are only allowed to charge a certain amount of interest, varying from state to state. According to the lawsuit filed against Chase in Ohio, this rate should be capped at 8 percent, since that’s state law - but the extended overdraft fee, when worked out as a percentage, is often far more than this (for the plaintiff in the case, who was overdrawn by $759.50, this rate worked out to be 12 times the legal limit). In the same way, the case against Bank of America explains that:
[Bank of America’s so-called “Extended Overdrawn Balance Charge”] is deducted from a customer’s account in addition to an initial $35.00 overdraft fee if and when the customer’s overdraft status remains in effect for a period of five (5) days. Bank of America, in reality, is charging its customers interest for the use, forbearance, or detention of money. The amount charged far exceeds the permissible limit under the National Bank Act.
Basically, even though it’s not presented as an interest charge, these extended overdraft fees are acting like interest – but at rates that exceed the maximum legal limit for bank interest charges. In Pennsylvania, Citizens Bank has also been sued for its sustained overdraft fees. The plaintiff, a company called Shelby’s Extraordinaire, was charged an overdraft fee of $39.00, but later faced new charges of $6.99 and $30.00 simply for remaining overdrawn. While Citizens Bank’s sustained overdraft fees are capped at $69.90, the bank offers, as the legal filing puts it, “no additional service to its customers in exchange for charging this extra fee other than advancing the original money to a customer's account in an amount to cover the overdraft.” This is why consumers are claiming the fees are tantamount to interest charges. The banks take your money, but they’re not actually doing anything for you or offering any new services.
How’s This Different Than the Debit Charge Lawsuits?
Great question! The lawsuits you’re thinking of were filed because banks were rearranging users’ debit orders, charging larger debits first rather than processing them in chronological order. They did that so the account would go into overdraft sooner – then, with each smaller charge that followed, banks could add new overdraft fees. Several banks have settled class action cases, often for large amounts: Chase agreed to a $110 million settlement in court in Florida, while PNC, TD Bank and Citizens Bank settled for $90 million, $62 million and $137.5 million, respectively. Bank of America, Citibank and Wells Fargo also faced lawsuits for unfair debit overdraft fees. The difference is that these new cases are about the overdraft fee itself, not the way it’s charged. Extended overdraft fees are also much newer, only introduced by banks within the last couple of years.
So What Can I Do Now?
If you think your bank has been charging you extended overdraft fees of one form or another - and possibly breaking the law - there’s lots you can do: talk to a lawyer in your area, complain to your bank and ask them for their stance, or report your bank to the Consumer Financial Protection Bureau. You can also take to social media to help more people learn about the problems and the lawsuits. Plus, keep checking our blog – as more news comes, we’ll keep you posted!