Umpqua Bank Sued for Overdraft Fee Assessments

A California woman has filed a class action lawsuit against Umpqua Bank, alleging the bank used misleading practices to charge unfair overdraft fees.

Umpqua, based in Portland, Ore., is not alone facing such allegations, as several other banks have also been sued recently in similar cases. Wells Fargo customers in California were awarded $203 million in damages in August 2010 related to the bank’s overdraft fee practices. Bank of Hawaii, Bank of Oklahoma, Union Bank and Westamerica have also repaid millions of dollars in overdraft fees in recent years, while Bank of America, Citibank and Wells Fargo have all adopted more consumer-friendly overdraft fee policies.

The lawsuit centers on allegations that Umpqua processed debit card transactions unfairly, re-ordering them from highest to lowest dollar amount. The implication is that Umpqua was intentionally depleting accounts by prioritizing the largest transactions, creating more overdraft fees as a result.

All financial institutions must choose a method by which they process debit card transactions, and Umpqua’s method—justified by assuring that consumers’ most important payments are paid first—is not uncommon, even though it causes low-balance accounts to go negative more quickly. Others process transactions in the order received, others in real-time, and others process the smallest transactions first.

“No matter which method is selected,” said Northwest Credit Union Association (NWCUA) CEO John Annaloro, “someone is likely to complain. The key is to make sure members have easy access to all the necessary information and that fee assessments are done in a manner that is consistent and fair.”

For credit unions, this issue is partially covered by Reg. E. As of July 2010, credit unions were no longer allowed to charge an overdraft fee on non-recurring debit card transactions unless members opted in to said programs. So, there are now two kinds of members. Those who have opted in have transactions in excess of their balances approved and subsequently pay a fee. Those who have opted out either have transactions in excess of their balances declined, or in certain circumstances, due to the electronic payments system, still get those transactions approved and pay no fee.

Mary Sroufe, director of compliance services for the NWCUA, said that the Association has addressed this issue in the past and continues to work with credit unions to develop strategies and policies that are fair to members without putting the credit union at risk.

“Because of the approved-but-no-fee situation, we brainstormed in compliance council ways to minimize the number of debit card overdrafts, and many credit unions mentioned they either already were or were planning to move to real time processing,” Sroufe said. “While some credit unions may still operate in an overdraft maximization mode, most are in an overdraft minimization mode.”

Tycko & Zavareei, the firm handling the suit against Umpqua, has been involved in a number of other suits against banks regarding improperly charged overdraft fees and likely isn’t finished.

“We are continuing to investigate Umpqua and other banks,” Hassan Zavareei said. “Customers must be compensated for bank practices that caused millions of dollars in improperly charged fees.”


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Posted in Compliance News.