Financial giant HSBC has agreed to pay $30 million to settle a class action lawsuit alleging that the bank had deliberately indexed debit transactions from the highest to the lowest dollar amount to maximize overdraft fees.

The HSBC class action lawsuit also claimed that when the customers’ accounts became insufficient, they would be charged $35 per overdraft fee.

The allegations in the class action lawsuit are similar to claims other banks and credit unions are facing, with many customers asking if overdraft fees are legal?

HSBC is one of the largest banking and financial institutions in the world, serving over 47 million customers through four global business specialties: retail banking and wealth management, commercial banking, global banking and markets, and global private banking.

According to the HSBC website, the bank’s goal is to help its customers grow their money by connecting customers with opportunities, helping businesses thrive, to help sustain economies, and to ultimately help consumers reach their goals and ambitions. However the large bank was hit with massive overdraft fee class action lawsuit, filed by customers demanding compensation.

The customers who are part of the overdraft class action alleged HSBC had intentionally indexed their transactions in an order that maximized overdraft fees.

New York Supreme Court Judge Eileen Branstan had granted initial certification for the proposed class, and also gave her preliminary approval for the proposed settlement.

Are Overdraft Fees Illegal?

The issue of exorbitant overdraft fees has become a prominent concern to consumers in recent years, as banks and credit unions have allegedly been trying to capitalize on them.

Banks and credit unions reportedly began raising overdraft fees due to fewer customers overdrawing their accounts, and contending with pressure from a fluctuating economy. This has led to many customers asking “are overdraft fees legal,” as well asking about the policies surrounding them.

While overdraft fees are not illegal by themselves, it is unlawful for financial institutions to charge overdraft fees to customers unless if they have opted for overdraft protection.

The Consumer Finance Protection Bureau has started writing policies that will prohibit financial institutions from indexing purchase transactions from highest to lowest as described in the HSBC overdraft fee class action lawsuit. The Bureau is also considering capping the amount in overdraft fees financial institutions can charge, as well as how frequently the charges are imposed.

The Bureau is expecting the new rules to be finalized sometime early 2016. In the meantime, HSBC denies any wrongdoing regarding their overdraft fees transaction process but agreed to the settlement to avoid further litigation.

The HSBC class action settlement applies to all HSBC customers in the United States who experienced large overdraft fees in their accounts due to how their transactions were indexed. The class period is from Dec. 17, 2004 and June 30, 2010 for consumer accounts, while business accounts are from Dec. 17, 2004 and Nov. 30, 2011.

The HSBC Overdraft Fees Class Action Lawsuit is In re: HSBC Bank USA NA Checking Account Overdraft Litigation, Case No. 650562/2011, in the Supreme Court of the State of New York, County of New York.

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