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Wachovia, BofA, Citibank Sued Over 'Bad-Faith' Overdraft Fees

John Pacenti

Georgetown University student Melanie Garcia became alarmed last summer when her Wachovia branch in Miami Springs charged her two overdraft fees for covering debit card transactions with insufficient funds in her account.

Garcia then discovered something peculiar about her purchases. At least four transactions were held for three days, and a check with the highest amount was processed first, depleting her account when smaller and earlier transactions could have been processed without a fee.

She ended up being charged $88 for $57.39 in overdraft protection. Outraged by this incident and at least one other, the graduate student decided to sue last September.

"Wachovia routinely enforces a policy whereby charges incurred are posted to consumers' accounts in nonchronological order designed to maximize the number of overdraft fees," the lawsuit claims.

She contends Wachovia's "scheme" abused contract rights and amounted to bad faith.

"These cases will have a tremendous impact on consumers all over the country who have been taken advantage of by banks' excessive overdraft fees," said Jeremy Williams Alters, co-counsel for Garcia from Alters Boldt Brown Rash & Culmo in Miami.

Garcia's lawsuit is the prototypical complaint for a multidistrict litigation in Miami challenging bank overdraft fee policies. Seven lawsuits from around the nation have been consolidated in front of Senior U.S. District Court Judge James Lawrence King. At least three more are expected to join the slate, plaintiffs attorneys say.

So far, Wachovia, Bank of America and Citibank have been named as defendants in the lawsuits, and plaintiffs attorneys expect other financial institutions to be brought in.

"I think what you will see is all of the major banks may be using the same computer program to reorder charges, which is costing consumers around the country billions of billions," Alters said.

Like most of the complaints, Garcia's suit is seeking class action status.

Aventura attorney David H. Lichter filed another lawsuit against Wachovia in Miami seeking class action status last month on behalf Anthony Scott Poulin of New Jersey.

"What happened here was fundamentally unfair," said Lichter of Higer Lichter & Givner. "It's what the bank does on a regular basis. It's unfair to hold and collect debit charges and manipulate them."

Wachovia was purchased by San Francisco-based Wells Fargo Bank last year for $12.7 billion. Kathy Harrison, Wachovia spokeswoman in Jacksonville, said the bank had no comment on pending litigation.

In a motion to dismiss a Georgia case now in the Multidistrict Litigation, Wachovia attorneys argued the bank's deposit agreement specifically authorizes both the bank's right to post items to accounts in "any order" and Wachovia's practice of posting the largest to smallest items.

"Wachovia's performance of those express provisions does not constitute a breach of the implied covenant of good faith and fair dealing," wrote Lawrence J. Bracken II, a Hunton & Williams attorney in Atlanta.

Overdraft fees are a fixture of modern banking. In the days before debit cards were so prevalent, banks would deny payment if accounts had insufficient funds. These days, banks cover overdrafts for a fee.

"In today's world, banks are taking advantage of everyone," Alters said. "On its face, overdraft protection sounds good. But when it's utilized in this way, it's just another method for the banks to make more money."

Congress has wrestled with the issue before. A House bill that died in 2007 would have increased regulation of overdraft loan programs.

Plaintiffs attorneys moved into the void.

Alters moved to have the overdraft fee cases consolidated before King, and the U.S. Judicial Panel on Multidistrict Litigation approved the move June 10, combining cases from California, Florida, Georgia and New Jersey.

Multidistrict litigation allows plaintiffs and defense attorneys to combine discovery and get a single ruling on pretrial motions that apply to all cases.

Alters' firm plans to apply to be the plaintiffs liaison counsel. He noted his firm hired appellate specialist Bruce Rogow in January and issues raised in the banking cases are likely to end up in the 11th U.S. Circuit Court of Appeals.

In MDL cases, the judge usually handles pretrial issues and sends cases back to the original jurisdiction for trial. But Alters said it's not unusual for the MDL judge to oversee trials. King ended up with the case after Alters filed an overdraft fee lawsuit on behalf of Ralph Tornes against Bank of America.

King "is an experienced and fairminded jurist and very aggressive in moving the cases," Alters said.

Lichter said the MDL litigation aims to do more than just reimburse customers for overdraft fees.

"We really want to change the business practices on a nationwide basis," he said.

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