Bank of America: $410 million for overdraft suit COURTS

Bank of America has agreed to pay $410 million to settle a lawsuit in which the lender is accused of manipulating debit transactions to maximize overdraft fees.

The agreement, made public Friday by the U.S. District Court in Miami, is believed to be the first financial settlement by a large bank in a case alleging deceptive overdraft practices. It may presage the outcome of related claims consolidated in Miami against 30 other lending institutions, including San Francisco's Wells Fargo, Citibank, Chase, Union Bank and U.S. Bank.

Meanwhile, Wells Fargo is embroiled in a separate lawsuit in federal court in San Francisco brought by California customers. That case started before the multistate legal action, but has not concluded because Wells has filed an appeal.

In August, U.S. District Judge William Alsup issued a scathing ruling ordering Wells Fargo to pay its California clients $203 million. He said the bank's goal was to "maximize the number of overdrafts and squeeze as much as possible" out of customers.

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The crux of the claims against all the banks is that they processed debit transactions from largest to smallest, instead of the order in which they occurred, depleting accounts faster and boosting the number of overdrafts, which cost as much as $35 per transaction.

At the time of Alsup's ruling, a Wells Fargo representative said the bank continued to follow the practice because it gives priority to larger payments, which tend to be customers' priority payments.

In the Bank of America case, the plaintiffs' lawyers argued that in addition to its selective ordering of transactions, BofA deceived customers by not disclosing to them that they could opt out of the overdraft plan and by failing to unequivocally explain that transactions would be ordered from high to low.

According to the complaint, BofA told clients that it might use its discretion in ordering, processing and posting items to the account.

"This statement is deceptive and/or unfair because it is, in fact, the bank's practice to always reorder debits from the highest to lowest ... and (the bank) reorders them so that higher debits that occurred on subsequent days are posted to its customers' accounts before lower debits that occurred on earlier days, contrary to the terms of the Bank Deposit Agreement and its customers' reasonable expectations," the complaint stated.

Further, the complaint alleged, BofA delayed posting charges to customers' accounts, sometimes for several business days. Subsequently, BofA posted all of the charges on a single date. The delayed posting prevented customers from obtaining accurate information about their account balances and allowed the bank to accumulate multiple overdrafts, according to the argument.

Neither the lawyers for the plaintiffs nor Bank of America's attorneys could be reached for comment Friday.

A BofA representative said the bank was pleased to reach a "fair solution" to the case and noted that before the settlement, the bank had made significant changes to its overdraft policies. Changes included declining purchases if a customer does not have sufficient funds and limiting daily overdraft fees per customer to four.

"Unlike others, we have already addressed many customer concerns on posting order when we eliminated overdraft fees for debit card transactions," said BofA spokeswoman Anne Pace.

The lawsuits coincide with new federal rules that took effect in August. They prevent banks from charging overdraft fees on debit transactions without a customer opting in to the service ahead of time. Customers who do not opt in will have transactions denied if account balances are too low, unless their banks decide to honor them without charging a fee.

Fees have become a central part of big banks' business model. According the Center for Responsible Lending, overdraft fees cost customers $10 billion in 2004, $17.5 billion in 2006, and $23.7 billion in 2008. Wells Fargo collected $1.4 billion in overdraft fees in California alone from 2005 to 2007, according to court documents.