JP Morgan Agrees to $110 Settlement in Overdraft Fees Dispute

JP Morgan Chase has become the latest bank to seek to settle a class action lawsuit alleging the bank wrongfully charged debit card customers millions of dollars in overdraft fees.

JP Morgan has tentatively agreed to pay $110 million to settle a class action lawsuit that claims Chase and 30 other institutions processed customer transactions so as to wrongfully maximize the overdraft fees charged to debit card accounts, according to American Banker. The banks manipulated the order of the transactions so that the transactions with the highest balances were processed first in order to drain accounts more quickly and incur overdraft fees. Bloomberg News reports that Chase routinely charged fees of $25 to $35 for small transactions of only a few dollars.

According to American Banker, Chase generated $500 million a year in post-tax income by processing transactions in a higher-to-lower order instead of the order in which they were conducted.

The tentative settlement is a “preliminary understanding,” according to papers filed on Friday in U.S. District Court for the Southern District of Florida. The settlement requires approval from U.S. District Judge Lawrence King, who is overseeing numerous overdraft cases, and is subject to further negotiations.

“We’re please to have reached an agreement in principle,” Patrick Linehan, a company spokesman said, in a statement emailed to media outlets.

JPMorgan – which, according to Bloomberg News, is the biggest U.S. bank by assets – is following in the footsteps of Bank of America, the second biggest U.S. bank by assets. Last year, Bank of America became to first bank to come to settle a suit over overdraft fees. American Banker reports that Bank of America agreed to pay $410 million, an amount equal to one-tenth of the overdraft fees it was alleged to have wrongfully charged. Since then, a dozen other banks have either settled or are in the process of settling suits, and in some cases plaintiffs have received up to 60 percent of the fees under litigation.

JP Morgan ranks ninth among national financial service firms likely to fulfill the needs of high net worth investors – those with investable assets between $5 million and $25 million. A fourth quarter study by Millionaire Corner shows that the majority of high net worth investors view Fidelity and Vanguard as the most suitable financial service providers.

High net worth investors rank Charles Schwab as third most suitable (43 percent) and U.S. Bank as fourth (37 percent). JP Morgan Chase ranks behind Wells Fargo, Bank of America, BB&T and Merrill Lynch and is seen as suitable by 31 percent of the high net worth.

The banking industry has responded to pressure from consumer advocates and federal regulators by largely abandoning high-to-low debt processing, reports American Banker, and income from overdraft fees fell by $3.6 billion to $29.5 billion in 2011.