Recently, many banks and credit unions have come under fire for excessive overdraft fees and other alleged improper overdraft protection activities.

Some of these financial institutions, like Citizens Bank, have been accused by customers of misrepresenting the sequence of posted transactions in order to charge more overdraft fees on an already overdrawn bank account, a process known as reordering.

What is an Overdraft Fee?

An overdraft occurs when a checking, savings, or money market savings account does not have enough funds to cover a transaction, but the transaction is still processed by the bank for a fee, also known as an overdraft fee or sometimes a courtesy pay fee.

Fees charged to customers by their bank when there is an overdrawn bank account are not illegal.  However, it has been alleged that many banks made a practice of manipulating how charges are allocated to customers’ accounts to unfairly increase overdraft fees.

Specifically, these banks process transactions starting with the largest-dollar-amount transaction and ending with the transaction with the smallest dollar amount, rather than processing all transactions in chronological order. This is done without fully or accurately disclosing these practices to customers.

This type of processing makes customer account balances fall faster than they should, which increases the number of overdraft fees that occur when an account is overdrawn and increases the banks’ revenue.

Citizens Bank Overdraft Programs

Citizens Bank offers two types of overdraft protection – an overdraft line of credit or a savings overdraft transfer. With an overdraft line of credit, a customer’s checking account is linked to the line of credit.  Funds are automatically transferred from the line of credit to cover an overdrawn bank account.

The costs for the Citizens Bank overdraft line of credit include a $30 annual fee, $6 transfer fee per item covered and interest on outstanding balances.

With the savings overdraft transfer, Citizens Bank customers can link their checking account to a savings account, where funds can be automatically transferred from the savings account to cover an overdrawn bank account.  There is also a $6 transfer fee per item covered and the bank only allows up to 7 overdraft fees transfers per plan on any one business day.

In 2013, Citizens Bank agreed to pay $137.5 million to settle a slew of overdraft fees lawsuits that alleged that Citizens Bank manipulated its customers’ transactions in order to generate excess overdraft fees.

According to the Citizens Bank overdraft fees lawsuit, an internal bookkeeping practice resulted in Citizens Bank customers being charged substantially more in overdraft fees than had their transactions posted chronologically.

Overdraft Fees Lawsuit Information

Effective as of July 1, 2010, financial institutions were mandated to have customers opt in to overdraft protection programs.  However, many customers are still confused to what their options are regarding overdraft fees as many banks may be not be disclosing the true nature of overdraft fees and programs.

As such, some customers have found it necessary to pursue legal action claiming that their bank or credit union manipulating the order of transactions instead of posting them chronologically in order to rake in more overdraft fees.

In assessing these fees, these lawsuits contend, a financial institution has breached the account agreement because it either misstates when it charges overdraft fees or fails to disclose how fees are calculated.

If you bank at Citizens Bank or other financial institution and suspect you have been charged improper or excessive overdraft fees, an experienced attorney can evaluate your case at no cost and advise about possibly bringing an overdraft fees class action lawsuit.

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