Stites & Harbison, PLLC

This past fall I reported to a number of clients that plaintiff’s attorneys appeared to have identified and were gearing up for the filing and prosecution of lawsuits against banks, credit unions and other financial institutions, challenging the procedure followed by financial institutions to process customer checks and other drafts for payment from the customers’ accounts, resulting not just in overdrafts, but in multiple overdrafts, and thus excessive overdraft fees earned by the financial institutions.

As you might reasonably expect, leading lawsuits had been filed in California and Florida.  But recently, a similar lawsuit has been filed in middle Tennessee.

In the California case, which had been filed in the United States District Court for the Northern District of California, and styled Gutierrez v. Wells Fargo Bank,  on August 10, 2010, a judgment of approximately $203,000,000 was entered against the defendant.  The allegations in that case were that Wells Fargo improperly re-sequenced items and entries from highest to lowest dollar amount when applying them against the customers’ accounts, in order to maximize overdraft fees.  In addition to the money judgment, the Court ordered Wells Fargo to cease its practice of processing larger check and debit card transactions before smaller ones, rather than in their actual presentment order.  Evidence relied upon the Court in making its findings and rendering its judgment, included internal bank memos and e-mails indicating that overdraft revenue was a huge profit center for the bank, and that the bank’s dominant motive for its presentment order practice was to maximize the number of overdrafts.  This case is presently on appeal to the 9th Circuit Court of Appeals, and the American Bankers Association has joined in the litigation as an amicus curiae and on March 7, 2011, filed its amicus brief in the appeal.

The Florida case, styled In Re: Checking Account Overdraft Litigation, filed in the United States District Court for the Southern District of Florida on June 10, 2009, remains pending and after 20 months remains in the discovery and motion stages.  Class-plaintiffs in that case come from Washington, Illinois, Florida and other states.  Defendants include approximately 30 national banks.  The plaintiffs claims are similar to those raised in the California case – the practice of posting drafts and other items from largest to smallest maximizes the overdraft fee income of the banks.  The Florida suit also raises various tort, contract and consumer protection claims.

Unfortunately, a similar type lawsuit, which seeks class certification, is now pending in the Davidson County (Nashville, Tennessee) Chancery Court.  (The lead attorney for the proposed class-plaintiffs is from Ft. Lauderdale, Florida, the same city from where one of the lead attorneys in the Florida case hails, so it could be presumed there is a good deal of information being shared between those counsel.)  On February 1, 2011, in the case styled Amy Morton, on behalf of herself and all others similarly situated v. Green Bank, the plaintiff alleges the defendant:

“Did not clearly disclose and/or refused to allow its customers to opt out of its overdraft protection program;

“Did not obtain affirmative consent from its customers prior to processing transactions that would result in overdraft fees;

“Does not alert its customers that debit card transaction will trigger an overdraft fee, and does not provide its customers with an opportunity to cancel such transactions;

“Manipulates and reorders transactions so that it can increase the number of overdraft fees its imposes;

“Manipulates and reorders debits from highest to lowest in order to maximize the number of overdrafts and, consequently, the mount of overdraft fees;

“Imposes overdrafts and overdraft fees when, but for reordering transactions, there would otherwise be sufficient funds in the accounts;

“Fails to provide customers with accurate balance information;

“Delays posting of transactions by customers using debit cards so that customers are charged overdraft fees on transactions, even though the customers had sufficient funds in their accounts to cover the transactions upon execution;

“Charges exorbitant fees that bear no relationship to the actual costs and risks of covering insufficient funds transactions;

“Breaches its covenant of good faith and fair dealing with Plaintiff and other members of the Class through its overdraft policies and practices;

“Requires its customers to enter into standardized account agreements which include unconscionable provisions;

“Converts money belonging to Plaintiff and other members of the Class through its overdraft policies and practices;

“Is unjustly enriched through it overdraft policies and practices; and

“Violates the consumer protection acts of certain states through its overdraft policies and practices.”

The complaint goes on to describe the defendant’s relationship with the class-plaintiff in more factual detail.  The plaintiffs seek a determination by the Court that the bank’s overdraft fee policies and practices are wrongful; restitution of all overdraft fees; “disgorgement of all ill-gotten gains”; actual and punitive damages; as well as an award of the plaintiff’s costs and attorney fees.

What is troubling about this lawsuit is that whereas the California and Florida cases were brought against a number of national banks, the Tennessee lawsuit is brought against a Tennessee-based based whose footprint is primarily within one state.  The filing suggests to this writer that other similar lawsuits, against similarly-sized financial institutions, are likely waiting in the wings.

Whether you are a bank, a credit union or other financial institution, and whether you are a national, regional, one-state or community-based financial institution, these type of suit filings should alert you to take a look at how you are processing and applying your customers’ checks, debit card transactions and other items, and consider the reasons for your practice.

Joseph J. Jensen is a Member in the firm's Nashville office where his practice focuses on representing banks, credit unions, and other financial institutions in numerous facets of their daily operations including, but not limited to: preparation of commercial and personal loan documentation; assistance with resolution of issues arising from environmental phase I and TSP assessments; participation in, and the negotiation of building and property acquisitions and leases; assisting with contract negotiations with third-parties and other business partners; assistance with development of loan workout solutions, and collection of non-performing/defaulted personal and commercial loans.