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

Comments 2 Comments

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.

[Article: Despite Cap, Banks Still Make Money From Debit Cards]

“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.

[Featured Product: Get a free trial credit score]

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.

[Tool: Quickly assess your risk of identity theft for free]

Image: Paul Lowry, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • 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.


  • Pingback: $410,000,000 Bank of America Settlement – No big deal. « classactblog()

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team