Community banks are more frequently being targeted with overdraft/NSF lawsuits as plaintiffs shift their focus from the largest financial institutions, according to law firm Winthrop & Weinstine.
Law firms have allegedly used social media to target individual banks. Winthrop & Weinstine noted social media ads that say:
- “Are you a customer of [Named bank]? You may be owed money, find out if you qualify.”
- “Did [Named bank] charge you overdraft fees? Find out if you are owed money.”
“As time has passed, and the big banks have all been hit, vulture plaintiff’s firms have turned their attention to small to mid-size banks and community institutions,” according to a Nov. 25 alert from the law firm. “For smaller institutions, the adage of ‘flying under the radar’ does not appear to count for much.”
Winthrop & Weinstine advised bankers who see an advertisement targeting their financial institution to contact the social media provider to demand the ads be taken down. “There may be a number of grounds to make such a demand, including improper use of the bank’s trademarks,” according to the law firm.
Winthrop & Weinstine Attorney Tony Moch said most NSF/overdraft lawsuits stem from banks not updating their NSF/overdraft policies to account for regulatory guidance in recent years. Banks must have a listing of all overdrafts they have charged and revise deposit account agreements to account for the changes, Moch added.
Winthrop & Weinstine advised an attorney ensure overdraft/NSF compliance by reviewing deposit agreements and notice provisions. “Remember, form agreements provided by vendors often aren’t litigation proof,” according to the law firm.
In 2023, the FDIC and Office of the Comptroller of the Currency warned banks that having overdraft or NSF fees on certain transactions could be unfair or deceptive. The FDIC recently recommended that banks halt the imposition of multiple fees, and found that not disclosing important information to customers about re-presentment fees and practices can be deceptive. Industry representatives dispute the regulatory agency’s guidance and a lawsuit on the issue is pending.
Nonetheless, the vast majority of such cases are successful for the plaintiffs, Moch said. Class action lawsuits are nearly always expensive, even if the cases are settled early. Such lawsuits are attractive for lawyers because they can take a contingency fee off a relatively high number of NSFs, Moch noted. The size of the settlement is specific to each institution, but can easily be in the six-seven figure range.
One community bank facing an overdraft lawsuit is Coralville, Iowa-based Central State Bank, which was sued by an accountholder in November seeking class action status on behalf of hundreds of customers. According to the lawsuit, the $740 million bank imposes a $32 overdraft charge on transactions. At issue, says the lawsuit, is the customer may have sufficient funds in their account to cover the debit or check.
The bank also allegedly charges re-presentment fees on a single item without securing customer agreement, generating “substantial revenue, to the tune of tens of millions of dollars,” while looking to “turn its customers’ financial struggles into revenue.”
Another bank facing an overdraft lawsuit is Des Moines-based Bankers’ Trust. A class-action case involving more than 100 customers was filed against the $6.7 billion bank in December 2023 alleging that its assessment of $33 unanticipated overdraft fees on debit card transactions through its “authorize positive, settle negative” approach is barred by banking regulators.
“Besides being deceptive, fair and unconscionable, these practices breach contract promises made in defendant’s adhesion contracts, which fundamentally misconstrued and mislead customers about the true nature of defendant’s processes and practices,” according to the lawsuit. “Defendant also exploits its contractual discretion by implementing these practices to gouge its customers.”
In recent years, large banks have also been targeted for class action lawsuits due to overdraft/NSF fee policies. In December 2022, Wells Fargo agreed to pay more than $2 billion to customers in a settlement with the Consumer Financial Protection Bureau. In 2018, Bank of America settled a class action lawsuit for $66 million for instituting a $35 fee when an account was initially overdrawn and another $35 when the account continued to be overdrawn for five days.