Fees on Top of Fees on Top of Fees...
The first thing that strikes anyone trying to understand the situation is the sheer number of fees Trustmark charges customers. Bank fees have risen and multiplied in recent years. For some large regional banks, fees constituted nearly 40 percent of income in 2017. “There is no justification for these practices, other than to maximize Trustmark’s overdraft fee revenue,” the lawsuit claims.
In McDonald there was a fee for using an out-of-network ATM, which is fairly usual, and another fee for checking an account balance. Many customers are surprised by balance inquiry fees. ATM screens do not typically disclose that a balance inquiry alone will incur a usage fee, and many ATMs in the United States do not charge usage fees for balance inquiries.
Finally, of course, there were the overdraft fees. This leads into some of the more hotly litigated questions of 2018, which is how banks calculate checking account balances, and whether some fairly obscure practices are adequately disclosed to customers.
Account Balance vs. Available Balance
According to the lawsuit, when a debit card transaction is authorized on an account with positive funds, Trustmark immediately reduces the consumer’s checking account balance by the amount of the purchase and sets aside funds to cover the transaction when it settles, often a few days later.
If, because of subsequent card activity, that transaction pushes the account into a negative balance when it ultimately settles Trustmark assesses an overdraft fee, even though it has already set aside the funds necessary to cover the transaction.
This is a common banking practice. Many banks make a distinction between two ideas: “available balance” and “account balance.” An “account balance” reflects a running total of funds in the account, including deposits and subtracting withdrawals. It is what most banking customers consider when thinking about what money they have to spend.
A customer’s “available balance” will not reflect funds held from deposits, which, as consumers may have noticed, often take a few days to credit. Funds set aside for debit card authorizations, however, are deducted immediately. The “available balance” is often less than the “account balance.” Many banks determine whether an overdraft has occurred on the basis of this lower “available balance.”
An Abusive Practice?
The Consumer Financial Protection Board has scrutinized whether the practice of using this lower “available balance” as the basis for assessing overdraft fees is deceptive when:
“a financial institution authorized an electronic transaction, which reduced a customer’s available balance but did not result in an overdraft at the time of authorization; settlement of a subsequent unrelated transaction that further lowered the customer’s available balance and pushed the account into overdraft status; and when the original electronic transaction was later presented for settlement, because of the intervening transaction and overdraft fee, the electronic transaction also posted as an overdraft and an additional overdraft fee was charged.”
So far, however, Congress has not acted to prohibit the practice. The task of protecting bank customers has, by default, fallen to the plaintiffs’ bar. McDonald and similar excessive overdraft fees lawsuits focus on the question of whether this fairly convoluted way of doing business is adequately disclosed to banking customers at the time they open checking accounts. Generalized anger against banks notwithstanding, these are contract law cases.
Two Key Agreements
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A second separate document, the Opt-in Agreement, must have disclosed the right that potential customers have to refuse overdraft protection. Overdraft protection sounds good, but with overdraft protection comes the possibility of overdraft fees. Regulatory agencies have drafted model language, which most banks use, but this will likely be a proof issue at trial.
The excessive overdraft fee lawsuits that have sprung up across the country throughout 2018 are all unique in some ways. They have, however, begun to challenge some common practices of financial institutions that harm consumers in predictable ways.