Class Certified in Claims Against Excessive Bank Overdraft Fees

July 26, 2011

Precedent Set for National Class Action on Behalf of Millions of Consumers to Move Forward Against 35 Banks for Exploitive Overdraft Practices

San Francisco, California -- A ruling by a federal judge to certify a class in claims against San Francisco-based Union Bank over predatory overdraft practices has set a precedent that could lead to class certification in claims against 35 banks that could impact millions of checking accountholders nationwide. U.S. District Court Judge James Lawrence King in the Southern District of Florida signed the order Monday certifying a class of potentially hundreds of thousands of Union Bank customers in California, Oregon, Washington and Texas.

In an amended complaint filed in late March in Larsen v. Union Bank, Union Bank customers in California charge that the bank reordered checking account transactions from high-to-low so as to maximize the revenue generated by overdraft fees in checking account transactions. As part of a multi-district litigation In re: Checking Account Litigation, MDL 2036, filed against more than 35 banks for charging excessive overdraft fees, the Union Bank claim is the first to receive class certification and sets a precedent for the certification of potentially millions of other customers in claims against some of the nation's largest banks, including JPMorgan Chase, U.S. Bank and Wells Fargo. Earlier this year, Bank of America agreed to a $410 million settlement for excessive overdraft fees on behalf of more than one million customers.

The plaintiffs are represented by co-lead counsel Bruce Rogow of Alters Law Firm, and Aaron Podhurst of Podhurst Orseck, both based in Miami.

"The Union Bank ruling sets a precedent for similar claims against other major banks to receive class certification," said Mr. Rogow. "Millions of Americans who have been exploited by banks' predatory overdraft schemes are a step closer to justice today. We're pleased the court has certified this class and allowed the case to move forward."

Court documents show that in 2003 Union Bank sought to "leave no stone unturned" in looking for ways to "improve the Bank's bottom line," when it decided to adopt a high-to-low overdraft scheme that an outside consultant estimated would generate the Bank nearly $18 million annually. Under the reordering policy, if a customer whose account had a $50 balance made four transactions of $10 and one subsequent transaction of $100 on the same day, the bank could reorder the debits from largest to smallest, imposing four overdraft fees on the customer. Conversely, if the $100 transaction were debited last - consistent with the actual order of transactions - only one overdraft fee would be assessed.

In an October 2003 Union Bank action plan, entitled "Union Bank of California High to Low," the bank stated it would "Post customer generated debits in the order of descending amount, regardless of trancode type. The objective is to charge fees on more items."

"Union Bank developed a policy and employs a practice whereby account charges and debits are posted to its customers' accounts out of chronological order for the sole purpose of maximizing the number of overdraft transactions and, therefore, the amount of overdraft fees charged to its customers," the plaintiffs' claim states.

Union Bank's fees were further facilitated, the claim states, by the bank's failure to notify customers of overdrawn accounts at the time of transactions, failure to notify that a transaction could incur an overdraft fee, failure to notify that customers could opt out of the overdraft program, and the charging of "exorbitant overdraft fees that bore no relation to the actual costs and risks of covering the insufficient funds transactions." After Union Bank implemented its high-to-low posting order, it also failed to clearly state in its revised Account Holder Agreement that it would post transactions in such fashion.

The Union Bank procedures contrast with the "best practices" for overdraft programs issued by the United States Department of Treasury and several other federal agencies in 2008. Those recommendations specifically directed banks to obtain the "affirmative consent" of customers to opt in to overdraft programs, or to provide a clear disclosure of the opportunity to opt-out. The American Bankers Association and the Federal Reserve have made similar recommendations.

"People who have accounts should be treated fairly by their banks. Exploitative overdraft practices designed to maximize the profits of big banks have unfairly punished people who are just trying to make ends meet," added Mr. Rogow.

Multiple studies have revealed that banks nationwide have turned to manipulating the order of debit card transactions in efforts to maximize overdraft fees. Banks are estimated to have collected $37 billion in overdraft fees in 2009. Estimates by Moeb Services have shown these fees disproportionately affect the poor, who are most likely to maintain low balances.

As of June 39, 2009, Union Bank had a retail customer base of approximately 1 million households and operated 335 branches and 566 ATMs in California and several other states. The bank is owned by UnionBanCal Corporation, which, at the time of filing, was the second largest commercial bank holding company headquartered in California and 16th largest commercial bank holding company in the United States.

Attorney Contact Information

Michael W. Sobol
Lieff Cabraser Heimann & Bernstein, LLP
(415) 956-1000

Bruce Rogow
Alters Law Firm
(305) 571-8550

Aaron Podhurst
Podhurst Orseck
(305) 358-2800

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