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Wachovia Sued Over 'Bad-Faith' Charging of Overdraft Fees
Fulton County Daily Report
March 17, 2009
At the end of Oct. 24 last year, Fulton County, Ga., resident Ken Vollmer had $229.01 in his Wachovia bank account, according to his online statement.
Three days later -- after weekend expenditures totaling $297.56 and an $85.56 refund -- Vollmer's bank account should have had a balance of $17.01.
Instead, Wachovia had penalized him for six overdrafts, charging his account $210, or $35 per overdraft, and throwing it nearly $200 in the red, according to a suit filed in federal court in Atlanta earlier this month.
Vollmer was soon caught in a spiral of mounting debt exacerbated by the burgeoning fees. In four days, Wachovia posted 24 debits to Vollmer's bank account that generated 22 overdraft charges totaling $770 -- leaving Vollmer with a balance of -$811.49, even though, according to his lawyer, his account had sufficient funds to cover most of those transactions.
Vollmer's predicament illustrates what he claims in a federal complaint is Wachovia's "routine practice" of posting charges to consumer bank accounts in such a way as to maximize overdraft fees, even at times when the actual funds in the account are sufficient to cover the transaction.
Those practices, according to the complaint, include posting to a consumer account charges that pass through the bank in the course of a single day in order of the largest amount to the smallest, even when larger charges occur days after smaller charges. They also include "intentionally delaying and rearranging the posting of transactions to accounts" and assessing overdraft fees even when customers have sufficient funds in their account to cover debits as they come due, according to the complaint.
Vollmer's suit doesn't dispute Wachovia's right to assess overdraft fees if an account is legitimately overdrawn.
But Vollmer's lawyers, E. Adam Webb and G. Franklin Lemond Jr., argue, "Because the occurrence, amount and frequency of overdraft charges are set unilaterally by [the bank], [it] has an obligation to assess and impose overdraft charges on consumers' bank account in good faith."
The bank breached that obligation, and acted in bad faith, they add, "by intentionally delaying and rearranging the posting of transactions to accounts in order to maximize the amount of overdraft charges imposed."
Vollmer is not alone. There are similar bad-faith bank fee suits pending in federal courts across the country, not only against Wachovia but also against Bank of America and Wells Fargo, which took over Wachovia last October. Those suits accuse the banks of deceptive practices intended to maximize bank profits at the expense of their customers and challenge bank policies governing the assessment of overdraft fees.
Last year, Bank of America set aside $35 million to settle a California suit with bank customers who claimed the bank posted debit transactions to accounts in high-to-low order. That suit said the bank also allowed customers to overdraw their accounts through debit transactions without warning them and provided inaccurate account balance information -- all with the intent of generating excessive overdraft fees, according to the settlement agreement.
Wachovia is facing nearly identical overdraft fee litigation by irate customers not just in Georgia but in federal courts in Miami, Camden, N.J., and in the northern district of California -- all of whom, like Vollmer, are seeking class action status.
The bank has petitioned a federal judge in Atlanta to stay action on Vollmer's complaint until the federal Judicial Panel on Multidistrict Litigation decides whether to consolidate the pending suits in the southern district of Florida.
On Monday, Wachovia spokeswoman Mary Eshet at the bank's North Carolina headquarters declined to comment on the litigation. Lawrence J. Bracken II of Hunton & Williams in Atlanta, who is defending Wachovia in federal court there, did not return phone calls by press time.
According to one of the bank's court pleadings in Atlanta, each of the pending complaints allege that the bank improperly posted charges to customers' accounts in "largest to smallest" order, resulting in excessive overdraft fees.
A separate suit against Wachovia in Fulton County Superior Court also claims that the bank's assessment of overdraft fees is deceptive and violates Georgia's Fair Business Practices Act.
CONFIDENTIAL SETTLEMENT
Last year, Wachovia confidentially settled a nearly identical suit in federal court in Atlanta brought by Casey and Emily White. The deal was hatched after U.S. District Judge Beverly B. Martin refused to dismiss the case, ruling that nothing in the bank's deposit agreement statements "expressly gives Wachovia the right to manipulate transactions, delay posting indefinitely, and maximize overdraft fees in the ways the complaint alleges."
In her order, Martin also noted that she was "not prepared to hold" that Wachovia's policy of posting larger charges before smaller charges, even when they were received later, "constitutes a good faith exercise" of the bank's discretion.
Webb and Lemond represented the plaintiffs in that case, but Webb said he cannot discuss the White settlement, which is "highly confidential."
But he suggested that bank policies that maximize overdraft fees at the customer's expense "is something that has aggravated many hundreds of thousands, if not millions, of people across the country."
Webb called Wachovia policies governing the assessment of overdraft fees and the manner in which they accrue "very questionable." Those practices, he claimed, "don't make common sense and, in the end, result in much higher numbers of fees without a real basis."
In particular, Webb challenged the assessment of overdraft fees stemming from the use of a debit card and of Wachovia's policy of paying the largest debits and checks from an account first.
Webb said that in Vollmer's case, the bank placed holds on his account whenever it received notification that he had used his debit card, even though the debit charge in question had not yet been submitted to or paid by the bank.
Those debit "holds" were assessed to Vollmer's account last October before his refund check cleared and helped to throw his account into the red, even though the bank had not paid out any funds and those holds were not reflected in Vollmer's online bank statement, Webb explained.
Bank officials have asserted that the bank has adopted a liberal policy of honoring the use of debit cards, even if an account will be overdrawn because its customers would prefer a $35 fee over the embarrassment of having a store reject a debit card. "They do have a plausible tale there," Webb said, although he suggested that many customers would rather forego a $3 or $5 debit than pay the resulting $35 overdraft fee.
Webb also said that Wachovia's decision to honor debits a bank receives in a single day in order from the largest to smallest rather than in chronological order or in a manner that minimizes an account's overdraft "grossly exacerbates fees. It's not what anyone would think is fair."
But bank officials assert that "the largest check is often the most important," Webb said. It pays the mortgage or the rent, pays the monthly loan on the car or the furniture. "What makes that a myth," he said, "is that they honor all these checks." Check returns were "more of a practice 20 years ago. ... That doesn't happen really any more, unless someone has a special status on their account" regarding a particular lack of credit worthiness. "In all the instances we've seen so far, every check is honored; every debit is honored."
Webb said that, based on research of other similar cases across the country, Wachovia's overdraft policy "is uniform, it is nationwide, it is basically computer and formula drive. It is a classic class action."
The banks, he said, appear to "make a huge percentage off of fee income. It's safe to say that over the last 10 to 15 years, this has been ratcheted up. It's sort of a race to the bottom."
Vollmer, according to Webb, is suing because, "He wants a change in business practices by the bank" as well as to be made whole for the multiple fees that should not have accrued to his account. "He is interested ... as a matter of principle." Banks "ought to charge only a fee that is somehow commensurate to the cost of the company ... and the risk they are taking in extending credit when they honor these [overdraft] charges."
The federal case is Vollmer v. Wachovia Bank, No. 1:09-cv-00560 (N.D. Ga.). The state case is Vollmer v. Wachovia Bank, No. 2009-cv-162648 (Fult. Super.).
