Bank of America settled an overdraft lawsuit for $66.6 million last week, marking the umpteenth time the institution has been accused of levying illegally high fees on cash-strapped consumers.
Reuters reports that the settlement details were disclosed in a San Diego courthouse. The agreement resolves a two-year old lawsuit, in which plaintiffs said Bank of America’s overdraft fees were really just interest charges.
However, the deal will require court approval before any award is disbursed.
If approved, the settlement would compensate nearly 6 million former and current Bank of America customers whose accounts have been charged overdraft fees since February of 2014.
Moreover the bank agreed to stop charging extended overdraft fees for the next five years – a policy change that’ll save customers around $1.2 billion, according to the plaintiffs’ attorneys.
“Our litigation argues that ‘extended’ or ‘continuous’ overdraft fees like the ones Bank of America charged are actually abusive and extremely high interest charges,” said attorney Jeffrey Kaliel. “Bank of America account holders will no longer have to endure these charges.”
According to the lawsuit, Bank of America’s overdraft policy results in consumers being penalized $35 for the initial offense, and then another $35 if the account remains overdrawn for an additional five days.
Lawyers for Bank of America customers say the second charge is akin to a predatory interest charge – while the first $35 provides the service of a customers’ check being honored despite insufficient funds, there is no service or benefit associated with the second.
Reuters recounts how one of the bank’s customers, California resident Joanne Farrell, was charged $35 for being overdrawn five days.
Over the course of each of the five days, Farrell’s bank balance ranged from about negative $2 to negative $284.
If the second charge is considered interest, it’d run afoul of regulations restricting usury – the $35 fee would represent interest of between 897 and 71,170 percent.
Attorneys for Bank of America unsuccessfully argued that, as a matter of history and policy, the legal system has differentiated between overdraft fees and interest. The fees, lawyers say, aren’t meant to extend credit, but rather penalize customers who can’t afford whichever goods or services they tried to pay.
In effect, they claim that overdraft fees persuade customers not to continue spending what they don’t have.
The settlement isn’t the first Bank of America has shelled out for its overdraft policies.
In 2011, the Bank settled for $410 million after consumers said it charged ‘excessively’ high fees on individuals who’d overdrawn their checking accounts.