Pogust Braslow & Millrood recently filed a Complaint against Banco Santander, S.A. and Soveriegn Bank involving unfair and excessive overdraft fees. The plaintiff in this case, Chris Shalaby, was charged hundreds of dollars in overdraft fees due to the banks’ reordering of certain transactions. These overdraft fees and those charged to thousands of other customers have become major sources of profit for Banco Santander, S.A. and Soveriegn Bank over the years.
According to the Complaint, banks used to cover customers who occasionally bounced checks and even did so for a time for customers using debit cards, without charging their customers. Since the early 1990’s, however, banks have devised methods to provide overdraft “protection” for customers and charge them in each instance. A recent FDIC report estimated that overdraft fees represent 74 percent of the total service charges that are imposed on deposit accounts in the United States. A 2008 FDIC study reports that overdraft fees for debit cards can carry an effective annualized interest rate that exceeds 3,500 percent. Nevertheless, the Consumer Federation of America reports that five of the ten largest banks raised their overdraft fees in the last year.
In 2007, banks collected more than $17 billion in overdraft fees. That number nearly doubled in 2008, as more and more consumers struggled to maintain positive checking account balances. In 2009, banks brought in $37.1 billion in overdraft charges alone.
Almost by definition, these fees disproportionately affect the poor, who are most likely to maintain low balances. Moebs Services, a research company that has conducted studies for the government as well as banks, estimates that 90 percent of overdraft fees are paid by the poorest 10 percent of banks’ customer base. Moreover, these fees have the tendency to create a domino effect, because the imposition of a service charge on an account with a negative balance will make it less likely that the account holder’s balance will reach positive territory, resulting in more fees.
Instead of simply declining debit transactions when there are insufficient funds, or warning its customers that an overdraft fee will be assessed if they proceed with the transaction, Sovereign Bank routinely processed such transactions and then charged its customers an overdraft fee of $35 – even when the transaction is only for a few dollars. This automatic, fee-based overdraft scheme is intentionally designed to maximize overdraft fee revenue for Sovereign Bank.
In many instances, these overdraft fees cost Sovereign Bank account holders hundreds of dollars in a matter of days, or even hours, when they may be overdrawn by only a few dollars. Even more egregious, customer accounts may not actually be overdrawn at the time the overdraft fees are charged, or at the time of the debit transaction.
Thus, it is through manipulation and alteration of customers’ transaction records that Sovereign Bank maximizes overdraft penalties imposed on customers.
The class action complaint filed by Pogust, Braslow & Millrood proposes three separate classes of consumers:
Class A: All Sovereign Bank customers in the United States who, within the applicable statute of limitations preceding the filing of this action to the date of class certification, incurred an overdraft fee but who did not affirmatively request overdraft protection and/or were not adequately advised of their right to opt-out of the overdraft protection scheme.
Class B: All Sovereign Bank customers in the United States who, within the applicable statute of limitations preceding the filing of this action to the date of class certification, incurred an excessive overdraft fee, which was greater than the amount of the overdraft.
Class C: All Sovereign Bank customers in the United States who, within the applicable statute of limitations preceding the filing of this action to the date of class certification, incurred an overdraft fee as a result of Sovereign Bank’s practice of re-sequencing debit card transactions from highest to lowest.
The three classes are collectively referred to as the “Classes.”
If you are a customer or former customer of Sovereign Bank who has also been the victim of overdraft fees, please contact Pogust Braslow & Millrood so we can discuss your potential case with you.