Citizens Settles Overdraft Suit
April 28, 2012 by admin
Filed under Overdrawn Articles
Citizens Bank, a unit of
The Royal Bank of Scotland Group
plc
(
RBS
), has agreed to disburse $137.5 million to settle the lawsuit
filed against it by the customers, as reported by
Boston
. The company was held responsible for maneuvering the transaction
entries in order to procure larger overdraft fees. The settlement
has yet to be approved by the U.S. District Judge in Miami.
The Back Story
Previously, Citizens was accused of using software programs that
manipulated the overdrafts fees charged on the customers’ debit
card and ATM transactions. The lawsuit filed by the customers
claimed that the transactions were re-sequenced by the company in
such a way that the largest withdrawals were deducted first instead
of being cleared in the order in which they were received.
As an aftermath, customers’ balances diminished faster,
resulting in a larger number of ‘overdrawn’ transactions, each of
which then became chargeable. As a result, the customers were
charged more than what was rightfully incurred.
Similar Settlements
Recently, in February,
JPMorgan Chase Co.
(
JPM
) was asked to pay $110 million to clear up the similar lawsuit
filed against it. The settlement is still subject to the approval
of the District Judge.
Last year,
Commerce Bancshares Inc.
(
CBSH
) paid $18.3 million while
Bank of America Corporation
(
BAC
) was asked to pay a whopping $410 million to the customers to
settle the similar lawsuits.
Moreover, in 2010,
Wells Fargo Co.
(
WFC
) was ordered to repay $203 million by the U.S. District Court of
Northern California to recompense customers who had sued the
company for charging unfair overdraft fees.
Rules Implemented by the Fed
After several banks were caught indulging in unfair practices to
expand their income by overcharging overdraft fees, the Federal
Reserve introduced certain regulations to provide more protection
to the customers against such malpractices.
Recently, the Consumer Financial Protection Bureau disclosed its
intention to scrutinize the overdraft fees charged by the banks as
well as the protocol of providing details regarding the overdraft
programs to the customers.
Earlier, in 2010, the Fed made it mandatory for the banks to
timely reveal the charging of overdraft fees to the customers and
to get their approval before initiating the overdraft facility on
the debit cards. Likewise, the Federal Deposit Insurance
Corporation (FDIC) also adopted a stern approach towards the
exploitation by banks through re-ordering transactions.
However, in spite of the implementation of such regulations, the
banks continued to take undue advantage of the customers as there
were no rules associated with the arrangement of the
transactions.
Nevertheless, after the intervention of the various regulators,
banks will no longer be able to charge such hefty fees without
informing the account holders.
Our Viewpoint
The announcement of settling unfair overdraft fees will affect
Citizens’ financials, but at the same time it will restore
customers’ confidence in the federal laws to some extent.
Though the number of the banks involved in charging unfair
overdraft fees has been increasing, the steps taken by the
regulators are expected to reduce such unfair practices in the
near-term. Moreover, the banks will be dissuaded from such
misconduct as a result of rising litigation costs as more customers
are now opposing such unjust ways of the banks.
Currently, The Royal Bank of Scotland retains a Zacks #3 Rank,
which translates into a short-term Hold rating.
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Article source: http://community.nasdaq.com/News/2012-04/citizens-settles-overdraft-suit-analyst-blog.aspx?storyid=137247