Bank Of America Settles Overdraft Fee Class Action

Bank of America has won tentative approval of a $410 million settlement of lawsuits accusing it of charging excessive overdraft fees to roughly 1 million customers. The Bank is reported to be putting this money in escrow while they await the Court’s final approval. U.S. District Judge James Lawrence King in Miami granted preliminary approval for the agreement earlier this week and scheduled a hearing in November to consider final approval. The law firm that brought the class-action lawsuit says that about 1 million customers will be eligible for payments.

Bank of America, the largest U.S. bank by assets, is among more than two dozen U.S., Canadian and European lenders that had been named as defendants in the class-action litigation, which in 2009 consolidated lawsuits filed across the country. The other defendants include such banking giants as JPMorgan Chase, Citigroup and Wells Fargo.

Overdraft fees, which are typically $25 or $35, disproportionately burden customers with lower incomes or low account balances. In their November 2009 complaint, customers accused Bank of America of routinely processing debit transactions from largest to smallest rather than in chronological order. The term for this is “Resequencing” and it can cause the customer's balance to dwindle faster than it might have otherwise. When accounts fall fast, overdraft fees can start to rack up in the hundreds of dollars, even if the account had been overdrawn by just a few dollars.

Bank of America spokeswoman Anne Pace said in an email the Charlotte, North Carolina-based bank has eliminated overdraft fees for debit card transactions and significantly lowered fees for customers who overdraw excessively. Last year, the Federal Reserve prohibited banks from charging overdraft fees on electronic and debit card transactions without advance customer approval. Some banks have been aggressively urging customers to opt-in to overdraft protection but Bank of America no longer covers overdrafts on debit cards-it simply rejects the transaction at the point of purchase.

The case is In re: Checking Account Overdraft Litigation, U.S. District Court, Southern District of Florida, No. 09-md-02036.

Meanwhile, Wells Fargo has appealed an August 2010 court order that it pay $203 million to California customers in an overdraft case.

DePuy Pinnacle MDL Venue Set

On May 16, the Multi-District Litigation Panel heard oral arguments regarding venue placement for the DePuy Pinnacle MDL in Louisville, KY. All claims filed in federal court against DePuy and its parent company, Johnson & Johnson, are going to be consolidated under one Judge in one venue for purposes of discovery and pre-trial motions.

Both Plaintiffs’ and Defendants’ attorneys were present at the DePuy Pinnacle MDL venue hearing. Although Defense counsel in their filing argued for venue to be placed in the Northern District of Texas (Dallas), they orally argued for the Southern District of Texas (Houston). Of the nine Plaintiffs’ counsel arguing, eight either outright argued for or deferred for the MDL to be placed in Houston. Chris Hellums, of Pittman, Dutton & Hellums, P.C., argued for placement in the Northern District of Alabama (Birmingham). Mr. Hellums cited the District Judiciary’s expertise and familiarity with complex products liability cases and the convenience of the location to all parties as reasons to award the MDL to Birmingham.

Interestingly, the MDL Panel did not send the MDL to either of the two Districts that were orally argued for, but instead sent the DePuy Pinnacle MDL to the Northern District of Texas. The MDL venue Order was filed yesterday.

U.S. Supreme Court Rules Against Consumers

The U.S. Supreme Court, in a recent ruling, handed businesses such as AT&T a major victory by upholding the use of arbitration for customer disputes rather than allowing claims to be brought together as a group.

By a 5-4 vote, the Supremes ruled that the corporation could enforce a provision in its customer contracts requiring individual arbitration and preventing the pooling together of claims into a class-action lawsuit or class-wide arbitration. The plaintiffs, Vincent and Liza Concepcion, filed their class-action lawsuit in 2006, claiming they were improperly charged about $30 in sales taxes on cell phones that the AT&T Mobility wireless unit had advertised as free.

Companies and large corporations love arbitration because it is a less expensive way of settling consumer disputes, as opposed to costly class actions, which allow customers to band together and protect their interests as consumers. Customer arbitration agreements are widely used by cell phone carriers, cable providers, credit card companies, stock brokerage firms and other businesses. These arbitration agreements are so common now, they appear in almost every contract between a corporation and a consumer. They usually appear buried in the fine print of a lengthy contract agreement and consumers typically do not understand what they are signing away when signing the contract.

This may be the most important class action case ever decided by the Supreme Court because it has the potential to permit companies to escape class action liability in almost all of their activities. Not surprisingly, shares of AT&T closed up 1.55 percent at $31.42 on the New York Stock Exchange after the recent Court announcement.

AT&T praised the ruling, saying the Supreme Court recognized that arbitration often benefits consumers. "We value our customers, and AT&T's arbitration program is free, fair, fast, easy to use, and consumer-friendly," the company said. Most consumer advocates denounced the decision because class actions have been an essential tool to achieve justice in our society.

AT&T had argued that a federal law that encourages the use of arbitration, the Federal Arbitration Act, trumped a California consumer protection law at issue in the case.

In its ruling, the Supreme Court's conservative majority agreed."The California law in question stands as an obstacle to the accomplishment of the purposes and the objectives of the FAA. It is accordingly preempted," Justice Antonin Scalia said for the majority in reading his opinion from the bench. Scalia cited a federal judge's conclusion in the case that the couple was better off under the AT&T arbitration agreement than under a class action, which could take months or years and could result in their winning just a small amount of money.

The ruling, which reversed a decision by a U.S. appeals court in California, was the latest in a series by the Supreme Court in recent years that generally favored arbitration.

The court's four liberal justices dissented. "The Court is wrong to hold that the federal act preempts the rule of state law," Justice Stephen Breyer wrote in dissent. It is somewhat ironic that the majority, who claim to be advocates of States’ Rights, decided in favor or preemption.

The Supreme Court case is AT&T Mobility v. Concepcion, No. 09-893.