pays $9 million
to settle suit over check-cashing policies
1.4 million current and former checking account customers of NationsBank
may be eligible for a refund of up to $50 for bounced check and
overdraft charges under a tentative lawsuit settlement.
In June of this year, NationsBank agreed to
settle a 2-year-old class action suit relating to its "biggest-first"
check-processing policy, which results in a larger number of bounced
check fees for the bank. The bank notified its customers of the
deal in letters sent out last month.
Without admitting liability -- or changing its
policy -- NationsBank agreed to pay $9 million. It will set aside
$5 million for refunds and pay $2 million in claims administration
fees and another $2 million in attorneys' fees.
Final court approval of the settlement is scheduled
for late January, says Steven Katz, an Illinois attorney representing
the class. Unless the judge in the case rejects the proposed settlement,
about 1.4 million customers are eligible to file a claim to recover
up to $50.
The suit arose over an increasingly common banking
practice -- processing the biggest checks first. Legally, banks
can process checks in any order they want -- first in, first out;
check number sequence; smallest to largest, or, like NationsBank,
largest to smallest.
"Biggest-first" means that if more than one
check arrives at the bank for processing on the same day, the check
for the largest amount is processed first.
bad check, three bank charges
may not sound like a major issue, but if you don't have enough money
in your account to pay all of the checks, it can mean the difference
between one bounced-check charge or a bunch of charges.
Here's an example: A customer has $1,000 in
his checking account. Check numbers 101 through 104 come in for
processing for $60, $10, $30 and $950, in that order. If the checks
are processed by the check number or in ascending order (smallest
to largest), the first three checks will clear and the fourth will
bounce, meaning the customer will be charged one fee for nonsufficient
funds. NationsBank charged $29 for each bounced check.
If the checks are processed largest to smallest,
however, the $950 check will clear first, and the checks for $60,
$30 and $10 will bounce, resulting in $87 in fees.
Bank of America, which took over NationsBank
in a 1998 merger, continues to process checks from highest to lowest
amount because, Bank of America spokesman Gordon Turner says, "Our
experience and what our customers have told us is that they prefer
for us to place priority on their largest checks. Most of those
are typically for a mortgage, car payments, IRS payments, insurance
premiums. Those are the kinds of checks that should you have insufficient
funds, they create the most problems. Those are the creditors who
report on a regular basis to the credit bureaus. Bouncing a check
at the grocery store may cost you a fee, but it has less impact
on your credit record."
The suit alleged that NationsBank didn't tell
its customers about the policy and that the practice led to extra
charges for insufficient funds and bounced checks. That, the suit
claimed, violated the federal Truth in Savings Act, the Illinois
Consumer Fraud Act and similar laws in other states. As part of
the settlement, Bank of America has notified all its customers of
its policy, Turner confirmed, and now includes it in information
to new customers.
Turner said he did not know how much money the
bank makes a year from bounced check fees. A June 1998 report by
the Consumer Federation of America estimated that banks in the United
States generate more than $5.2 billion a year in bounced check revenue.
million beats nothing
While the amount of bounced-check fees collected totaled at least
$40 million, one $29 bounced check charge for each member of the
class, Katz says the suit was settled for $9 million because he
knew there was a good chance of losing if they went to court.
"Banks have won these cases," he says. "As we
looked at it, it was going to be an uphill battle. We thought it
was a good settlement."
While the settlement allows for payment of up
to $50 per eligible claim, that doesn't mean that everyone who fills
out a form will get a refund. And not everyone who is eligible will
file a claim.
"We think we have enough money, but it's very
difficult to predict claims," Katz says. "It's not a science, it's
Although Katz says he is pleased that the suit
is producing some refunds for customers, the real victory was that
now customers know about the policy.
"It was like pulling teeth to get them to change
the disclosure," he says.
"That was our biggest goal. If you look at the
pleadings, they denied that it was legally required to disclose.
We said, 'Yes, you do.' That's the dispute and that's what we settled.
We considered the refunds to be icing on the cake."
Pat Curry is a freelance writer
based in Georgia
-- Posted: Nov. 10, 1999