A settlement has finally been reached in the ongoing court case between Bank of America and its customers over what’s believed to be unfair overdraft fees. The bank has agreed to pay customers compensation of $66.6 million. Over 6 million customers are thought to be owed money for fees which have been paid between February 2016 and now. Bank of America’s spokesman Jerome Dubrowski has declined to comment on the case.
The lawsuit representing the customers mad the case that the extended overdraft fees being charged on customers’ accounts were unfair, and were subject to consumer protection laws which prevented excessive fees. BOA have been charging “account fees” when customers were overdrawn for 5 or more days. It was ruled that these should have been treated as interest payments, meaning that the rates were unlawfully high. The bank has been charging $35 as an overdraft fee, and then a further $35 if the account remains overdrawn for 5 days.
The initial fee has been confirmed as legal, as it’s a service fee for the bank honouring the payment when there were no funds available. However, the lawsuit argued that the second fee should be treated as an interest payment. One customer was charged $35 for being overdrawn for 5 days, with balancing ranging from $3.59 to $284.86. That equates to 897% – 71,170% APR. The legal limit for interest rates in BOA’s home state North Carolina is 8%.
The recent court settlement resolves the ongoing fight, which started in 2016, claiming that the fees are subject to a ban. BOA has now agreed to stop charging its customers the extended overdraft fees for the next five years, which could save customers up to $1.2 billion. Jeffrey Kaliel, who is representing BOA’s customers, said that “Our litigation argues that extended or continuous overdraft fees like the ones Bank of America charged are actually abusive and extremely high-interest charges. Bank of America account holders will no longer have to endure these charges.”
BOA’s lawyers had argued that regulations and courts view overdraft fees differently to interest, and therefore should be treated different. The bank claims that the fee is not an interest charge, but simply a deterrent for customers to stay overdrawn. This is not the first time Bank of America has been taken to court by its customers. Last year the bank was taken to court over possible mortgage fraud in the 2008 financial crisis, and earlier in the year they were taken to court by the City of Miami over an ongoing civil rights case. This result against the bank is considered a big win for consumers.