Earlier this month, West Coast-based Umpqua Bank became the latest banking company to come under fire for purportedly unfair overdraft policies. Amber Hawthorne, a former member of one of Umpqua’s California branches, filed a class-action lawsuit in response to what she perceived to be an unjust attempt to overcharge Umpqua customers for over-withdrawing from their debit accounts, also known as overdrafting.
Earlier this month, West Coast-based Umpqua Bank became the latest banking company to come under fire for purportedly unfair overdraft policies. Amber Hawthorne, a former member of one of Umpqua’s California branches, filed a class-action lawsuit in response to what she perceived to be an unjust attempt to overcharge Umpqua customers for over-withdrawing from their debit accounts, also known as overdrafting.
It’s a charge that Hawthorne levels against the modern banking industry as a whole. As the text of the lawsuit—filed on Dec. 29, 2011—states, “In 2009, banks brought in $37.1 billion in overdraft charges alone.”
The class-action suit is based on the charge that a number of practices within the overdraft protection program are unjust. The suit claims that instead of charging Umpqua customers the $35 flat fee that it currently imposes for all overdrafts—even an overdraft as little as $1—the bank should simply refuse to process any transaction that over-withdraws from a customer’s account. As the program is now, the suit contends, a series of small purchases throughout the day could end up costing the unaware consumer hundreds of dollars in overdraft fees for what could amount to as little as $15 in actual purchases.
The most damning of the accusations leveled against Umpqua involves the alleged reordering of debit transactions from highest to lowest (instead of the chronological order of purpose), making the larger purposes more rapidly deplete the funds within the account and allowing the probabilistically larger amount of smaller purposes to each be charged the overdraft protection fee. The suit states that such policies “disproportionately affect the poor, who are most likely to maintain low checking account balances.”
Eve Callahan, a public relations representative for Umpqua Bank, fervently denies these accusations.
“The lawsuit contains false allegations,” Callahan said. “Umpqua Bank does not post charges in hierarchical order.” Furthermore, she said, Umpqua’s overdraft protection program is offered on a strictly opt-in basis with full disclosure of the fee structure, pursuant to regulations imposed by the Federal Reserve in July 2010.
“Cases like these are an unfortunate attempt to drag good companies through the mud,” Callahan said. “We take our identity as a community bank seriously.”
Umpqua Bank is far from the first financial institution to play defendant in such a lawsuit. In November 2011, a federal judge awarded $410 million to the claimants of a similar suit levied against Bank of America. The Bank of America suit was based on the unjustness of the same $35 overdraft fee. More than 13 million Bank of America debit card holders are expected to receive money from the settlement.
The Bank of America suit, coupled with the introduction of a hotly contested $5-per-month fee for access to a debit card, inspired Bank Transfer Day, a loosely organized event during which participants could express discontent with the U.S. banking system by switching their accounts from corporations to credit unions.
“I decided to leave Bank of America when I heard about the mandatory debit fee that would soon take effect,” said Ryan Deming, junior international studies major. “I heard from my roommates that [local credit unions] don’t charge anything and have better customer service, so I figured, why not?”
The Umpqua Bank class-action lawsuit will undoubtedly take several months to settle, but if the bank is found guilty of the charges against it, the suit could set an important precedent for the future of banking practices and profit.
