The Bank of Hawaii (BoH) is being investigated after paying a $9 million settlement with customers over the way it assesses overdraft fees.

In 2011, BoH was targeted in a major class action lawsuit  in which plaintiffs claimed the institution had been making it a practice to reorder debit card transactions from the highest to the lowest amounts, thereby maximizing the number of overdraft fees that could be charged. According to the complaint, customers were charged multiple fees in a single day over a five-year period.

That wasn’t the end of the bank’s questionable behavior, however. In 2016, BoH was targeted again over allegations that it had been charging overdraft fees on accounts that actually had sufficient balances to cover the transactions. Plaintiffs claimed that the defendant’s opt-in agreement failed to make its overdraft policy clear and unfairly used a customer’s “available balance” rather than the actual balance in deciding when to charge overdraft fees.

Through overdraft fees, banks and credit unions derive substantial amounts of revenue from customers who occasionally make mistakes, or deliberately overdraw their accounts expecting to be hit with one fee, but often wind up paying several.

Maximizing Overdraft Fess by Re-ordering

In April, 2014, the Pew Charitble Trusts published the results of research on 44 of the nation’s largest banks and found that, despite consumer complaints and class action lawsuits, more than half of them still engaged in the practice of reordering debit card transactions from the highest amount to the lowest. It’s also known as “high to low posting,” “shuffling,” and transaction “sequencing” or “re-sequencing.”

Here’s how it works: John Smith has $120 in his account. He spends $100 on tires for his vehicle in the morning, then has a beer with some buddies after work for $10. Late in the day, a pending automatic withdrawal for $130 is posted to his account – but it hasn’t actually been paid, nor will it be for another day. John is not concerned, as he has a check for $250 that he deposits at an ATM on the way home.

The bank may do two things here in order to maximize overdraft fees. First, when it processes the transactions, it considers not his “actual” balance, but his “available” balance – so, $120 minus the $130 auto-deduction, which is “tied up” until the funds are actually transferred. Second, it processes that automatic payment first.

Had the bank processed the transactions in the order in which they were received, John would have wound up paying one overdraft fee. Instead, by taking out the $130 ahead of the others, John incurs not one but three overdraft fees.

At an average of $35 a pop, these fees can add up quickly. For lower-income bank customers, these fees can cause a downward spiral of miring debt that increases when banks charge additional fees for not covering the overdraft within a certain number of days.

Isn’t Reordering Illegal?

Despite hundreds of consumer complaints, investigations and lawsuits, the practice of reordering is still legal. The New York Times reports that about half of the banks studied in the Pew survey have stopped reordering transactions, or have limited the practice, but it remains a problem for many consumers – particularly because many banks are unclear about such policies and are increasingly resorting to forced arbitration as a form of dispute resolution.

If you were charged overdraft fees or NSF fees by your bank or credit union that you believe are improper for any reason, the attorneys who work with Top Class Actions are ready to investigate these fees on your behalf.

Learn more by filling out the form on this page.

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This article is not legal advice. It is presented
for informational purposes only.