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Citizens Bank parent settling overdraft suit for $137.5M

| Wednesday, April 25, 2012, 3:53 p.m.
Citizens Bank
JASMINE GOLDBAND
Citizens Bank

The parent of Citizens Bank of Pennsylvania agreed to a $137.5 million settlement of a class-action lawsuit Wednesday alleging the bank manipulated debit transactions to maximize overdraft fees consumers paid the bank, according to a Miami law firm.

The settlement agreed to by Citizens Financial Group involves an estimated 1 million customers in Pennsylvania and other states who were allegedly overcharged for debit and automated teller machine transactions between 2003 and 2010, said attorney Robert Gilbert, a partner at Grossman Roth in Miami.

The settlement, which needs to be approved by a federal judge in Miami, includes customers of Citizens Financial's Charter One Bank in Ohio and elsewhere in the Midwest.

"We are pleased to have this matter behind us," said Citizens spokesman Jim Hughes. "As our industry evolves, we continue to provide our customers with choices to help them manage their accounts and their finances -- online, on the phone or in our branches."

The lawsuit against Citizens is part of a larger class-action case filed against 30 different banks, including Pittsburgh-based PNC Bank. The lawsuit, which is pending in the Miami court, claims those banks engaged in similar practices.

PNC spokesman Fred Solomon said the bank does not comment on litigation.

According to the lawsuits, the 30 banks systematically manipulated the order that transactions were presented to the bank for payment, such that the largest ones always came first. That meant the customer would incur an overdraft fee sooner than necessary.

For example, a bank customer with $100 in his checking account might use a debit card one day to buy a $10 breakfast, $20 lunch, $50 gift, and $40 dinner. Presented in that order, those debits would trigger one overdraft fee with the dinner debit. The lawsuit claims the banks counted from highest to lowest debit amounts, in this case, generating two overdraft fees.

"We think this is an excellent result for Citizens customers," Gilbert said. "We hope for similar results for customers of PNC and of the other banks involved."

Other banks named in the lawsuit include Citibank, Wells Fargo and US Bank. Bank of America reached a $410 million settlement of the case in May, and JPMorgan Chase reached a $110 million preliminary settlement in February.

New rules on overdraft fees imposed by the Federal Reserve in July 2010, required bank customers to sign up -- or opt in -- to be covered by overdraft protection.

For millions of consumers who have unwittingly overdrawn their accounts by small amounts and been stung by hefty penalties, the new guidelines put an end to one of the most expensive and aggravating abuses in modern banking, experts said.

How abusive was demonstrated two years ago by a federal judge in California who ordered Wells Fargo & Co. to change what he called "unfair and deceptive business practices" that led customers into paying multiple overdraft fees, and to pay $203 million back to customers.

The nation's financial institutions made more than $10 billion in overdraft fees a year before the new rules took effect, according to the Center for Responsible Lending,

PNC Financial Services Group, the parent of PNC Bank, estimated the change would cost it about $115 million in lost fees in 2010, according to a Securities and Exchange Commission filing.

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