How the $110 million overdraft fee settlement went into JP Morgan Chase’s favor

American Banker:

Plaintiffs accused Chase and more than 30 other banks of processing customers' debit card transactions in a way to wrongfully maximize overdraft fees. Specifically, the banks processed debit card transactions not in the order in which customers conducted them but instead from the highest-to-lowest transaction balances; the change allegedly caused customers to drain their accounts quickly and maximized the overdraft fees assessed against them.

"Chase made enormous profits from overdraft charges, much of it taken from Chase's most vulnerable customers," the class action claims. The bank generated $500 million a year in post-tax income from high-to-low re-sequencing, according to Chase's own analysis.

As cover for its actions, plaintiffs allege, Chase falsely maintained that it had chosen high-to-low processing because consumers requested it. The opposite was true — Chase logged almost 10,000 complaints monthly about its overdraft fees and re-sequencing, according to internal records of complaints.

…..

Chase's proposed settlement appears relatively favorable to the bank, given that the $110 offered is just 22% of its alleged earnings from wrongful overdraft fees. One factor that likely worked in Chase's favor was a mandatory arbitration clause in its consumer contracts. Judge King ruled that Chase had failed to assert its right to arbitration in a timely fashion, but the bank was in the process of appealing that ruling. A Chase victory in its appeal would likely have killed the class action entirely.