These practices do not, at least today, seem to break federal banking law. But they are arguably deceptive, and ripe for California breach of contract and consumer law claims.
Out-of-Network ATM Fees
US Bank is one of the nation’s very largest banks. Size, however, is not measured by branches, convenience or customer happiness. It is measured by revenue. At some larger regional banks, customer fees account for as much as 40 percent of total bank revenues.
Customers who have checking accounts at US Bank can easily find themselves without an in-network cash machine nearby. Should they make a withdrawal at an out-of-network bank, they will pay at least two fees: first, a $2.95 fee to the non-bank affiliated owner that operates the out-of-network ATM; and second, a $2.50 fee to US Bank for the withdrawal.
If they check their balance before making the withdrawal, there is a third $2.50 fee to US Bank. That totals $7.95. For an impulsive $20 cash machine run, the bank makes a profit of more than 25 percent. Small dollars multiplied many times mean big profits for the bank.
Surprise Overdraft Fees Hit Small Account Holders Especially Hard
The second, and more tangled situation involves overdraft fees. It is only complicated because of the fine distinction that US Bank and many other banks make between two terms: “available balance” and “account balance.”
An “account balance” as defined in the US Bank customer agreement reflects a running total of funds in the account, including deposits and withdrawals. A customer’s “available balance,” however, will not reflect funds held from deposits and funds held for debit card authorizations.
Here is the operational difference:
• Banking customers who check their balances to ensure that they will not over draw, see their account balance:
• Because of debit and deposit holds, however, the available balance may be less than the account balance;
• The bank assesses overdraft fees based on the available balance;
• Even careful, well-meaning customers who are working with small accounts can fall into overdraft because they relied on the wrong information;
• Banks’ practice of maintaining debit holds for as long as several days actually means that the available balance in an account may not be determinable until well after a debit card transaction occurs;
• In addition, because banks frequently re-order transactions from highest to lowest amount, one over-the-limit transaction can ultimately trigger several overdraft fees;
• Customers, especially those with limited funds, rarely sue big banks because of the cost of individual litigation, which is why class action litigation is essentially the only remedy in these situations today.
Very few customers read the fine print on the deposit agreements they sign when opening a checking account, and even those who do can find these distinctions confusing.
US Bank’s Standardized Deposit Contract
The essence of McGovern’s lawsuit against US Bank is that its standardized customer deposit agreement is deceptive with respect to both the balance inquiry ATM fee and the way in which overdraft fees are assessed.
The standardized contract allegedly describes only one out-of-network fee, not the additional fee charged for an out-of-network balance inquiry. Further, McGovern claims that customers are misled because experience has taught them to expect a free opportunity to check an account balance before proceeding with a cash withdrawal from an out-of-network ATM. ATM screens do not typically disclose that a balance inquiry alone will incur a usage fee, and few ATMs in the United States charge usage fees for balance inquiries.
The dispute about overdraft fees is familiar from many bank overdraft fees lawsuits. McGovern’s lawsuit makes the point that most banking customers reasonably assume that debit transactions are debited from their accounts immediately – not that they may be held for several days and then bundled in a way to maximize bank profits.
Furthermore, the Consumer Financial Protection Board has flagged the practice of debit holds as deceptive when:
READ MORE EXCECESSIVE OVERDRAFT FEE LEGAL NEWS
Is Legislative Relief on the (Distant) Horizon?
U.S. Senators Cory Booker (D-NJ) and Sherrod Brown (D-OH) have introduced federal legislation that would regulate the overdraft fees that banks charge consumers. The Stop Overdraft Profiteering Act of 2018 would ban overdraft fees on debit card transactions and ATM withdrawals and limit fees for checks and recurring payments. It would also require banks to post transactions in a manner to minimize overdraft and nonsufficient fund charges. The bill is still in the very early stages of the legislative process, but might ultimately bring relief to bank customers, who currently have few remedies.