Bank of America has agreed to pay $66.6 million to end a putative class action claiming it violated usury laws by charging account holders an additional $35 fee for failing to replenish their overdrawn accounts within five days. Under the settlement, the bank also agreed to stop hitting customers with additional $35 charges – on top of the initial $35 that it charges accounts with insufficient funds – for five years, saving class members approximately $1.2 billion over that period. The motion for preliminary settlement approval was filed last month.
The customers’ lawyers argued that the deal is fair and offers substantial value for customers, considering the risks associated with litigating claims in the case, which they say are “untested and novel.” The motion read:
Plaintiffs and class counsel are confident in the strength of their case, but are also pragmatic in their awareness of the various defenses available to the bank, and the risks inherent to litigation of this magnitude – which challenges engrained banking industry practice.
If approved, the deal would resolve a putative class action lead Plaintiff Joanne Farrell filed in February 2016 that alleges the bank’s follow-up $35 charge, as a percentage of an account holder’s negative balance, exceeds the interest rate permitted by the National Banking Act. Farrell claimed the bank’s extra $35 fee was “egregiously high, usurious and illegal,” and she sought to represent all Bank of America checking or money market account holders who incurred one or more extended charges within the last two years.
In April 2016, the bank sought to get the suit dismissed, arguing that the charges don’t constitute interest on an extension of credit and instead are merely authorized deposit account service charges, or flat fees. But in December, U.S. Judge M. James Lorenz veered from three other district court rulings on the issue, finding that the extended fees are connected to an extension of credit – in this case, advancing funds to cover an overdrawn account – that creates a framework for which an extended charge can be considered interest on that extension of credit.
Bank of America appealed Judge Lorenzo’s decision to the Ninth Circuit, but in October, the parties notified the court they had reached a settlement. The deal is a nonreversionary opt-out settlement, under which the bank has agreed to automatically pay out $37.5 million to customers charged the fees, without class members having to submit claims. The bank also agreed to set aside $29.1 million to cover charges assessed against customers whose accounts have been closed, and it agreed to update account reports sent to credit bureaus. The parties estimate there are more than 5 million potential class members.
The settlement is said to save Bank of America account holders more than a billion dollars in overdraft charges and it provides meaningful payments to customers who incurred fees. While the settlement ensures Bank of America customers won’t have to endure “abusive and extremely high interest charges,” millions of account holders at other banks across the country are still subject to them.
Farrell is represented by Bryan Gowdy of Creed & Gowdy PA, Jeffrey Kaliel of Tycko & Zavareei LLP, Jeff Ostrow of Kopelowitz Ostrow Ferguson Weiselberg Gilbert, John J. Uustal, Cristina Maria Pierson and John R. Hargrove of Kelley Uustal PC, and Walter W. Noss of Scott & Scott LLP.
The case is Joanne Farrell v. Bank of America NA, (case number 3:16-cv-00492) in the U.S. District Court for the Southern District of California.