BofA Faces Negative-Balance Fees Class Action Lawsuit

Last week, Bank of America NA was hit with a proposed class action lawsuit by a customer who claims the fees that BofA charges for having a negative balance for more than five days on top of overdraft fees are “egregiously high, usurious and illegal.”

Plaintiff Joanne Farrell filed the lawsuit over the $35 fee that Bank of America charges on top of its $35 overdraft fee. The $35 negative-balance fee is charged to consumers who fail to bring the funds in their checking or money market account to the positive within five business days, the lawsuit states.

“Unlike an initial overdraft fee, the Extended Overdrawn Balance Charge is an additional charge to a customer for which the bank has provided nothing new,” Farrell argues. “The charge is based solely on the alleged indebtedness to the bank remaining unpaid by the customer for a period of time.”

The Consumer Financial Protection Bureau (CFPB) is thoroughly investigating the overdraft practices and procedures at credit unions and banks, as these fees have brought in as much as $30 billion annually, the complaint stated. Negative balance fees account for nearly 10 percent of the overdraft fees that banks charge, according to the complaint.

Farrell seeks to represent all BofA customers who hold a checking or money market account and who were assessed one or more of the “extended overdrawn balance charges” within the last two years. The lawsuit estimates the potential class could be in the thousands.

The Bank of America class action lawsuit claims that the negative-balance fee imposed by BofA violates the National Bank Act by charging an amount that “far exceeds the permissible limit” under the Act.

The lawsuit contends that overdraft services offered by financial institutions are essentially “extending credit” to consumers, so the bank should be subject to a cap on the interest it can charge on the credit extended, which will vary based on location. Based on North Carolina standards, where BofA is based, the maximum yearly interest rate is eight percent, Farrell argues.

Rather than being charged $35 for the negative balance charge for 13 days following her overdraft in the amount of $284.86, Farrell said she should have only been charged 81 cents based on the interest rate cap. However, the suit alleges, Farrell’s charge amounted to “an effective annualized interest rate of between 897% and 71,170%.”

The lawsuit argues that the sustained negative balance fees are essentially disproportionate for the service provided. The lawsuit cites a report from the CFPB indicating that: a negative balance is likely to be cleared within a few days after sustaining the charge and most transactions (nearly two-thirds) are for an overdraft of $50 or less. The lawsuit states, “As these statistics highlight, a bank’s exposure for carrying a customer’s overdraft is ordinarily very small and limited.”

According to the class action, BofA has violated the National Bank Act and the plaintiff is seeking damages for twice the amount of usurious interest consumers paid, as well as fees for attorneys, witnesses and other costs.

Farrell’s proposed class action comes one month after BofA agreed to settle with a group of millions of Pennsylvania consumers over allegations of improperly charging overdraft fees on authorized purchases. BofA has agreed to pay $27.5 million to resolve claims in that case.

Farrell is represented by Hassan Ali Zavareei and Jeffrey Kaliel of Tycko & Zavareei LLP  and Jeffrey M. Ostrow of Kopelowitz Ostroe PA.

The Bank of America Negative-Balance Fees Class Action Lawsuit is Joanne Farrell v. Bank of America NA, Case No, 3:16-cv-00492, in the U.S. District Court for the Southern District of California.