Bad bank behavior on steroids
MB Financial charges overdraft fees when a customer has insufficient funds to cover a debit transaction. Like many banks, it determines the sufficiency of funds at the time the merchant settles the transaction, which can be several days after the bank authorizes the transaction. Authorization occurs when the customer swipes the card.
The delay does two things: it can make it harder for the customer to track the account balance. It also allows banks to reorder transactions in a way to maximize the number of overdraft fees they collect. That practice has already come under intense Consumer Financial Protection Board scrutiny. In 2009, banks reportedly collected $37 billion in overdraft fees. During the years in question, MB Financial charged $37 per overdraft, which was among the highest in the country.
In addition, however, MB Financial charged a “continuous overdraft fee” for any overdraft that remained uncorrected for more than one day. It charged that fee every day that the account had a negative balance for up to 16 days.
In 2015, MB Financial charged Ms. Boone a total of $2.121.50; in 2016, it charged her $2,154; n 2017, the total was $1,806. This was at a time when her average income was approximately $1,100 per month. This is a classic example of the kind of predatory lending practice that targets the financially vulnerable.
Bank overdraft fees a widespread problem
Bank overdraft fees are estimated to cost consumers over $15 billion each year. The practice affects more Americans than the payday loan industry, which, until recently seemed on the verge of federal regulation.
Nearly 18 percent of checking account customers pay three or more overdraft fees a year. Half of those pay 10 or more. Perhaps more significantly, bank overdraft fees disproportionately burden low-income customers. Anecdotal evidence suggests that this is one of the reasons why people decide to live without a bank account, which in turn makes it difficult to establish credit and climb the economic ladder. The poor get poorer.
The banks, however, are doing just fine. In 2016, for example, America's three biggest banks, JPMorgan Chase, Bank of America and Wells Fargo, earned more than $6.4 billion from ATM and overdraft fees.
State law claims against MB Financial
Boone’s complaint alleges that MB Financials practice violates the law in three basic ways. First, she claims that the bank breached the terms of her checking account agreement by assessing overdraft fees when the debit transaction was settled, rather than when it was authorized. This is the original maneuver that sets the whole overdraft fee machinery in motion. Although her checking account agreement allowed the bank to charge continuing overdraft fees when a negative balance persisted for two days, she alleges that those fees were assessed before the full 48-hour period of time had elapsed.
Her second claim, that the bank violated a duty implied under Illinois law to act in good faith and fair dealing, goes beyond the letter of the contract to get to the spirit of honest commerce. Specifically, she claims that MB Financial abused its contractual discretion to approve or decline overdraft transactions by programming its “matrix” to maximize overdraft fee revenue at all costs, and to repeatedly authorize transactions that resulted in thousands of dollars of overdraft fees each year.
Finally, she cites the bank for violating the Illinois Consumer Fraud and Deceptive Business Practices Act by engaging in fraud, unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce. The bank, she alleges, violated Illinois statutory law by intentionally employing a deceptive practice of charging overdraft fees on transactions that were authorized at a time when a sufficient balance existed in an account.
READ MORE EXCECESSIVE OVERDRAFT FEE LEGAL NEWS
Class action lawsuits are the remedy for excessive bank overdraft fees
For all the ballyhoo surrounding the initial creation of the CFPB, neither it nor federal legislation has turned out to be much of a factor in protecting bank customers from excessive bank overdraft fees. Class action lawsuits seem to be the available recourse. They have their limits too, of course. Although they may bring relief to specified classes of plaintiffs, they are necessarily piecemeal, limited by bank, and, in some cases the constraints of state law. Nonetheless, this is the remedy at hand for those who have been the victims of this abusive bank practice.