Law firms are investigating Umpqua Bank on behalf of potential plaintiffs who say they were charged overdraft fees improperly.

Umpqua, based out of Portland, Ore. with branches in neighboring Washington, California, and Nevada, has been the defendant in a previous class action lawsuit that was first filed in December of 2011. In that complaint, plaintiffs claimed the bank processed debit transactions out of order, with the largest amounts being paid first regardless of the date.

According to the Pew Charitable Trusts, at least half of all financial institutions reorder transactions. This practice increases the odds of depleting low-balance accounts faster, thus maximizing the number of overdraft fees that can be assessed.

The defendant ultimately settled that lawsuit in February 2015 for $2.9 million plus court costs. As is usual in such settlements, the defendant was not required to admit liability.

Now, Umpqua faces another investigation over what may be improper overdraft fee practices. Specifically, consumer advocates are concerned that Umpqua, like many other banks and credit unions, may have failed to disclose their practice of processing transactions out of order.

The Hows and Whys of Reordering Transactions

The issue of reordering transactions is a frequent cause of action in lawsuits against financial institutions. It works like this: Joe has $1500 in his checking account. He writes five checks for $100 apiece on Monday and Tuesday, then writes another for $1,400 on Wednesday – expecting to make a $3,000 deposit on Thursday or Friday at the latest, figuring that in the worst-case scenario, the five smaller checks will clear and he’ll be stuck with a $35 overdraft fee for the big one.

Instead, his bank processes the $1,400 check first, even though it was written and dated last. This way, the bank ensures that four of his $100 checks wind up bouncing, thus triggering four $35 overdraft fees instead of one.

It gets even more complicated when using a debit card. Usually, retail transactions are deducted immediately and are reflected in your balance right away. On the other hand, there are situations, such as fuel purchases, in which a hold will be placed on your account – which is debited against your “available balance.” A situation like this can also trigger an overdraft fee – and while it is unfair, it is legal. Furthermore, many consumers are completely unaware.

The Fed Steps In on Overdraft Fees

One step that has been taken to rein in banks and credit unions is a rule, issued by the Federal Reserve in 2010, requiring that customers actively “opt-in” to overdraft protection for ATM transactions and one-time debit card transactions. In other words, these institutions can no longer simply sign depositors up automatically as has been the practice in the past. Legally, banks and credit unions must also provide full disclosure about how transactions are processed and in what order.

Financial institutions that fail to be transparent about how and when such fees are assessed can be held liable for civil damages.

What Is the Nationwide Impact of Overdraft Fees?

Americans pay billions in overdraft fees every year. In 2017, for example, over $34 billion was paid to banks as a result of overdrafts. Overdraft fees have also increased since 2009, meaning that each individual transaction really adds up.

In 2000, the average overdraft fee was $20. In 2018, however, that average for bank fees was $30 followed by credit union overdraft fees at $29.

Consumers are supposed to enroll in overdraft protection programs by giving their consent, but certain financial institutions in the past have auto-enrolled consumers. This means that the charge went through, but that the consumer might not have been aware of how those fees could be tacked on for an allowed transaction.

If it takes a consumer even a few days to pay back an overdraft fee, this is a massive annual percentage rate.

Unfortunately, the problems consumers experience with overdraft fees are likely not going to chance any time soon. Just 15 or 20 years ago, overdraft fees were not as common as they are today. Previously, they were just an “occasional accommodation for customers, but now, they have become much more prevalent. Today, they represent a major profit center for banks.

The Center for Responsible Lending reported that big banks made $11.45 billion in overdraft fees in 2017 alone. Nine billion of this $11.45 billion was charged by just 20 banks, who hit their customers with the largest number of total overdraft fees. Additionally, this $11.45 billion figure does not represent the total number of overdraft fees. Other institutions like smaller banks and credit unions also charged overdraft fees to their customers, but they were not included in the CRL figure.

Critics of overdraft fees argue that banks are effectively making money off of customers that have the least amount of money, putting those in need in even more dire financial straits in the interest of lining the bank’s pockets.

According to the Center for Responsible Lending, the Consumer Financial Protection Bureau reported that just eight percent of banking customers bear the brunt of overdraft fees. This eight percent reportedly pays 80 percent of all overdraft and “non-sufficient funds” fees.

The Center for Responsible Lending further illustrates how overdraft fees disproportionately impact low-income individuals and compound hardship. Reportedly, the median number of fees charged to a group of frequent overdraft customers is 37 per year. This meant that these struggling customers were paying around $1,300 in overdraft fees per year.

Can I Unenroll from My Overdraft Program?

Maybe in the past you needed the overdraft program as a form of protection. If you received numerous fees, however, and now want to exit that overdraft protection, make sure you contact your bank directly.

You might be able to unenroll from the program through your online banking, but you might want the extra peace of mind that comes with visiting the branch in person to remove yourself from overdraft. If you exit a bank overdraft program, this means that charges attempted against the account when there’s not enough money will be declined. This means no overdraft fees.

Join a Free Bank Overdraft Fee Class Action Lawsuit Investigation

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.