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Citizens Bank Settles Overdraft Fee Class Action Lawsuit

This article was written by in Banking. 14 comments.


Banks are still struggling with the decisions executives made to maximize profit from overdrafts by rearranging the order of withdrawals to customers’ detriment. By December last year, Bank of America settled a class-action lawsuit related to overdrafts and was expected to pay $410 million. That decision is being appealed by a plaintiff, so it will still be a long time before the results are determined and class members receive compensation, if any.

Earlier this year, JP Morgan Chase settled a related class action lawsuit for $110 million.

Citizens Bank is the latest bank to come to terms with the way it took advantage of customers. This bank has agreed to pay $137.5 million to settle.

For the most part, banks continue to engage in the process of reordering withdrawals processed on the same day (whether the withdrawals be through checks, electronic direct debits, or ACH transactions) to optimize the possibility of collecting multiple overdrafts. The largest withdrawal is processed first, and subsequent withdrawals are processed from largest to smallest. Banks offer a reason for this order. They claim that the largest withdrawals are often the most important, such as rent or mortgage payments, and want to ensure these payments have the strongest possibility of being processed. That explanation doesn’t hold up for customers with overdraft protection, though, because this service allows all withdrawals to be processed — for a fee.

Furthermore, banks at the time of the lawsuit often allowed for multiple overdraft fees on a single day. With a $200 bank balance and withdrawals of $20, $50 and $300 in one day, the customer could be charged three different overdraft fees of $35. This is obviously more profitable for the bank than allowing the smaller transactions to be processed ahead of the larger withdrawal. Since the media attention surrounding the lawsuit, some banks have changed their policy to allow for only one overdraft fee per day, but many banks continue this practice.

So far, the only new regulation regarding overdraft fees requires banks make the service optional. Customers can opt to have transactions declined when the funds are not available to cover the withdrawal. Banks still steer customers towards overdraft protection as they feel it is a better experience for the customer, and, of course, a significantly profitable approach for banks.

Are you a customer of Citizens Bank? Have you ever had problems with Citizens Bank’s overdraft fees and policies?

Published or updated April 27, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar Dennis @ Brochure Boxes

More and more the banks are restructuring and offering overdraft protection for free or a small fee but people decline it. Overdraft protection is a form of insurance for people that are tapping out their account on a regular basis. Use your savings to cover an overdraft and replenish the savings when possible. Why even take the chance of getting a charge for money you have. Just because the money is in two places doesn’t mean you should not utilize them both.

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avatar Ceecee ♦53 (Newbie)

I worked in a bank and was not aware of this practice. Even if you have overdraft protection, there is usually a fee for the transfer, and the bank could use this method to make several transfers and collect several fees. Although it would not happen if a person did not overdraw, this still seems highly unethical.

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avatar Kami

I was a victim of Citizens Bank, and I had called their national customer service line over and over, ledger in hand, statements in hand, and even reciepts with timestamps of my transactions, telling them that they screwed up. I was getting hundreds of dollars in overdrafts because of making one math mistake of a few cents. The response I got from the supervisor was “WELL if YOU would keep a ledger, YOU would see you’re overdrawn.” I told her I wasn’t denying that I was overdrawn, but I wasn’t overdrawn on Tuesday, i was overdrawn by a few cents on Thursday, and because they had ordered all my transactions from biggest to smallest instead of by how I actually spent them, they forced me into overdraft. She just wasn’t seeing it. Sometimes I wasn’t even off, and they’d still do it in such a way that I’d be overdrawn, it was because they actually changed the date (I saw it on the website) of when my paycheck would post to my account by anywhere from 2-4 days, whatever they could do to make it look overdrawn. By the end, they owed me thousands over the years. That last argument, I was $200 in the hole, and I just opened an account with someone else and let that citizens account go into collections. I had asked them once when I had probably $400 in the citizens account if I could just close it. They wouldn’t let me ! they said I had to have exactly a zero balance and just let it go inactive after a few months, and it would close automatically. I should have just pulled all my money out right then. I want to know how us consumers get our money back that the banks stole from us.

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avatar Cassy

I am going thru the exact same thing now with Citizens bank and its all before Christmas. I can’t even get my kids their presents because the have messed up my account so bad. What should i do ?

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avatar jm24

omg.. me too.. it is aggravating to no end… they say one thing and do another… transactions that happen on friday can overdraft you on tuesday if they are using the unethical way they do business .. a 5 dollar atm withdrawal will cost you an extra 37 dollars when the input transactions they way they wish… drives me insane..

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avatar katy

Yes!!! I’m a single mom with multiple sclerosis and only recieve disibility for an income. I overdrew my account by accident thinking I had more in my account then I did. This month my disibility check was 150.00 less than normal because of a medicare payment social security took out. Normally masshealth covers that for me and but I didnt renew on time cuz Inever got the papers. Sooo thinking I had more in there than I did I went on to use my debit card like usual for coffee, gas, a lot of under $10 transactions. Had no idea until yesterday because thyey sent the notices to the wrong address even though I’ve told them on 3 occasions the correct address. I’m looking at $600 in overdraft fees come Thursday when my SSDI deposit is put in. I’m in such a panic Im not gonna be able to pay my bills
Kate G
Mansfield, MA

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avatar shellye ♦107 (Cent)

OD fees are such a huge moneymaker for banks; we really have no idea. The moral of the story is to not spend more money than you have available. Even if that means writing down every purchase, service charge, ATM fee, etc. These days, people depend way too much on a quick glance of their account online and totally forget about automatic withdrawals that may not have come out yet, or monthly fees that haven’t been debited yet, and their own purchases that may not have come out of their account yet. You have to remember that the merchant decides when he’s going to debit your account for your purchase – not you, and not your bank. The bank has an obligation to process all debits at the time they come in, whether it’s the same day the purchase was made or a week later.

Having said all that, I’ve made mistakes when it comes to balancing a checkbook myself, so I’ve been there. But as despicable as the banks’ practices have become, it’s still up to us to keep track of how much we spend and how much we have left in our accounts.

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avatar Lisa Lopez

Really?? I keep track of my account daily and I keep track of the automatic withdrawals. It’s still a matter of banks rearranging our transactions and changing dates so that they can collect overdrafts fees! Sorry that’s just wrong!!

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avatar e

I had the exact same experience to the letter as Kami- I did payroll for the company I worked for and knew when the checks go into the accounts (because I was the person paying them). They go in Wed at midnight – somehow though Citizens translated that as Thursday at midnight which meant Friday. They just kept repeating that I need to keep better track of my account. They also refused to prove the timing of the transactions or give me a print-out that showed them – they said it all happened at midnight at the same time…? Well then how do you determine I was overdrawn? I argued at the bank and in front of all the customers she told me I need to keep better track of my finances (I work as a bookeeper for my company also.) They never informed me of the change of terms as far as pending transactions and innaccurate balance info if you check the atm due to them or that you could now withdraw money unendingly while overdrawn. 7 years my account never worked that way and I never bounced anything. They sent me a new ATM in the mail and de-activated my old ATM it was not accompanied by new terms – nor was I given a reason – suspicious I called to ask about the terms to which I still wasn’t informed. Ultimately it affected my ability to qualify for a home loan I got hit with a higher rate – because there was this big fat overdrawn by 500 written on every statement (they never remove it once it’s there they show every month.) Which brings me to another point – If banks require original statements for loans then how can they legally be allowed to charge you for them? I had to provide a years worth of statements (they will not accept online print-outs as legal documents. Yet I am charged $3.00 a month. They also charge me $9.00 for every non citizens ATM (foreign fee, non citizen’s fee, and the other parties’ fee.) They have also quite often charged me duplicates on these. It’s one thing to make a mistake but the fact that they are deliberately screwing customers is insane – I want my money back.

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avatar e

Oh yes all told it was about $500.00 in the span of the first month they did this (once I was aware they couldn’t get me again – they needed the element of surprise to make it happen) And once you bounce your now just a deadbeat and they figure no one will believe you then. $500.00 is a whole weeks pay for me. Bet it added up to billions for them. But how many people had tragic life-altering circumstances occur as a result of their actions? I hope the settlement will cover that. In fact this should not settle they should be fined for what they did. Comcast is also guilty of this. Being a wise finance and somewhat cheap – I cancelled my cable – they turned it off but unbeknownst to me not at the pole – they charged me for 6 months more to the tune of almost $700.00 – I fought it every month and continually told them i wanted it off – they refused to end my service – yet I had no contract – they put the charges on my credit report – I fought it up through corporate where they decided I could pay half and still be left with the ding on my credit. This should be illegal as well – but after -all it’s up to me to prove I cancelled my cable. All these companies are operating like thieves and criminals – they are no better than organized crime.

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avatar Gurukarm

I just have found out about this settlement, and, as a Citizens Bank customer to whom this has happened more than once (most recently just a couple weeks ago when they held my husband’s paycheck an extra day, even though it showed up as deposited and available in the online ledger, causing $111 of fees), what I want to know is, how do we get some of the settlement money?? Nothing I’ve read tells about that.

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avatar Cejay ♦1,521 (Half-Dollar)

While this has nothing to do with the settlement I just received my first overdraft. We have a savings account with enough money in it to reach the amount we thought was needed to link with our checking account. I had a check from disability insurance and I procrastinated in putting it in the bank. I just did not take a lunch break when I went back to work and the check arrived. Hubby thought the check was deposited and I did not think it would matter. We bounced a check and they took the money from our saving account but then charged us a fee. What the HECK!!!!!!!

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avatar D

I’ve had same happen to me . they reorder withdrawals. instead of one overdraft charge i ended up with four in one day, Is every customer going to be included in this settlement?

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avatar marie daly

I have a CD with Citizens Bank. They charged me a $50 “inactivity fee” on my CD, after sending no notices about the CD renewal. What is worse, I cannot withdraw my money for another year, unless I pay another $50. They have had the use of my money for several years while paying almost no interest, and no they hit me with a $50 fee. It took the manager about 30 seconds to “reactivate” the account. This is a bank turned robber!

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