Debit resequencing allows banks to post checks and ATM withdrawals not in chronological order, but in a way that maximizes overdraft charges. Overdraft charges make big money for banks. According to research published by the Consumer Financial Protection Board (CFPB), JP Morgan made $1.9 billion from overdraft charges in 2016, Wells Fargo made $1.8 billion, and Bank of America made $1.7 billion. Consumers paid $17 billion in overdraft and NSF fees in 2015.
That kind of profit potential may make the risk of a lawsuit seem cynically reasonable, even if debit card manipulation cuts close to the law. It would not be such a hard business question, though, if plaintiffs could not afford to get to court by means of a class-action lawsuit but had to arbitrate as individuals. For the bank, the strategy adds up because only a nut would arbitrate over the relatively small, though personally painful, expense that overdraft fees represent.
That, in any event, appears to have been Wells Fargo’s plan in Gutierrez v. Wells Fargo. Five depositors sued the bank in 2008, claiming they were charged excessive overdraft fees through debit resequencing. The District Court found that the bank’s Consumer Account Agreement, which checking account customers were required to sign, was both difficult for consumers to understand and misleading. The CFPB has previously taken action against TCF Bank and Santander Bank for similarly tricking customers into signing up for overdraft fees.
The argument that depositors should arbitrate in lieu of suing as class-action plaintiffs appears to be something of an afterthought, and was not well-received by the Eleventh Circuit Court of Appeals principally because of the procedural history of the case.
If the bank wins, all bets are off for the checking account customers. If the bank loses, it might face a payout of more than $1 billion. This is a number that might change the risk/reward calculus for banks and make a big difference for checking account holders.