July 29, 2011 Articles

Nothing Is Certain in Overdraft Fee Litigation

Even if one can argue that the financial crisis is now drawing to a close, the litigation that it spawned—including overdraft litigation—will likely be with us for some time.

By Amy L. Brown

In the wake of the mortgage meltdown and financial crisis, financial institutions have faced increased scrutiny of their business practices and policies. One area of particular interest has been financial institutions’ practices and policies associated with providing “overdraft” protection for their customers. In exchange for a fee, many financial institutions offer overdraft coverage in the event a customer does not have sufficient funds in his or her account to pay for a transaction. Since 2008, a slew of class actions have been filed across the country, challenging the method used by many financial institutions to post debit transactions and the resulting overdraft fees where there are insufficient funds in the customer’s account to cover the transactions. Specifically, these class actions assert that financial institutions enter charges debiting customer accounts from high to low, thereby overdrawing the accounts more quickly and maximizing the number of overdrawn transactions and the resulting overdraft fees charged to customers. Plaintiffs assert a host of claims based on these allegations, including breach of contract, breach of the covenant of good faith and fair dealing, unconscionability, conversion, unjust enrichment, and violation of state consumer protection statutes.

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