Home > 2011 > Personal Finance > Bank of America to Pay $410 Million for Overdraft Fee Scheme

Bank of America to Pay $410 Million for Overdraft Fee Scheme

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Bank of America has agreed to pay $410 million to settle a class-action lawsuit that accused the nation’s largest bank of manipulating customers’ debit card accounts to generate billions of dollars in extra overdraft fees. The bank admitted no wrongdoing, but customers who lost money to the practice will receive partial refunds.

The agreement could put a little money back into the pockets of 13 million people.

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“It’s really undisputed that this is one of the largest settlements ever in a consumer case,” Aaron Podhurst, one of the lead attorneys in the case, told the Associated Press.

According to the lawsuit, beginning in 2001 Bank of America changed the way it processed debit card purchases. Instead of recording them as they happened, chronologically, the bank started processing purchases by dollar amount, charging the largest purchases to customers’ checking accounts first.

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The practice increased the likelihood that customers would overdraw their accounts, as well as the number of times they were likely to overdraw. For example, if someone bought a pack of gum, then box of band-aids and finally a flat-screen television, BofA would process the TV purchase first. If that was enough to overdraw the account, then the bank would charge overdraft fees of about $35 apiece for the gum and the band-aids.

“This automatic, fee-based overdraft scheme is intentionally designed to maximize overdraft revenue for Bank of America,” according to the complaint, “as part of its inequitable motive to generate obscene profits….”

Bank of America admitted that it processed large purchases first, but denied that the practice was wrong or illegal. Members of the class do not need to do anything to receive payment. Those who still have Bank of America checking accounts will have the money credited to them automatically, while those who have left the bank will receive payment by mail, according to a website set up to answer questions about the suit.

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Image: Paul Lowry, via Flickr.com

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  • Louellen Lambertson

    When is this money to be distributed to the public, and how much should each individual receive, If there is more than one person on the account [say a mother and daughter how does that work ? do both the mother and daughter get moneys or just the primary account holder] also if the account has been unused because of banks needless overdraft fees and pretty well closed because it has been usused because of this, does the check come directly to the individuals or what? Please respond I’m sure this is a question that many have and would like tpo have answered?

    Louellen Lambertson

  • Christopher Maag

    Hi Louellen,

    You can learn about the suit here: http://www.bofaoverdraftsettlement.com. If you lost money due to the scheme, Bank of America has agreed to pay you. If you still have a BofA account, the money will be credited to your account automatically, even if you rarely use it anymore. In that case, it shouldn’t matter whether there are multiple people named on the account – the money will simply go in, and you and your daughter can decide how to divvy it up. The average consumer will get back about $31.50, which is significantly less than most victims lost to the scheme (since a single overdraft costs about $35, and the entire point of the scheme was to generate multiple overdraft fees per customer).

    Thanks for writing. I hope this helps.

    -Chris

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