Citizens Financial Corp has agreed to pay $137.5 million to end a class-action lawsuit over its overdraft fees.
The bank announced the deal in a joint filing with the plaintiffs' attorneys, who have brought similar cases against dozens of other major banks (see story).
All of the suits, which are consolidated in Florida federal court, center on banks' practice of manipulating the posting order of debits to customer accounts. By reordering the charges from high to low, Citizens and its peers heaped additional overdraft fees on debit card customers who spent more than they had in their accounts.
The settlement stands out for its size, which one of the plaintiffs' attorneys, Robert Gilbert, described as "a very significant percentage" of the alleged harm done to Citizens' customers.
"We think it's an excellent result for our clients," he said. Royal Bank of Scotland Group owns Citizens.
Previous settlements in the case have ranged from around 10% of the alleged damages in a settlement with Bank of America to a high of 63% in a case against Union Bancorp (see story). Gilbert says that the Citizens settlement will not match that upper level.
The settlement amount was so high in part because Citizens had no contractual provision requiring consumer arbitration. While such mandatory-arbitration clauses have not carried much weight in the case to date, banks that used them still had a potential out of the litigation.
"Arbitration is a very big challenge," Gilbert said. "Citizens did not have an arbitration clause at all, and that reflects itself in the result."
Well more than a dozen banks already have settled the overdraft litigation. Cases against PNC Financial Services, Toronto-Dominion Bank, Capital One Financial Corp. and Comerica are in litigation, though both Cap One and Comerica are in settlement talks with the plaintiffs.
Last week, a member of Los Angeles' Xceed Financial Federal Credit Union filed a lawsuit claiming the financial institution engaged in deceptive and unfair practices by re-sequencing his debit transactions to create overdrafts in his accounts (see story).
Moreover, the Consumer Financial Protection Bureau's in February announced it is targeting overdraft-protection practices (see story).
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