Legal Briefing: Bank Overdraft Fee Lawsuit Goes Forward


A daily look at legal news and the business of law:

Big Banks Failed to Kill Lawsuit That Could Cost Billions

Consumer attorneys across the country sued all the big banks -- Bank of America (BAC), Citibank (C), JPMorgan Chase (JPM), and Wells Fargo (WFC), just to name a few of the defendants -- alleging that the banks manipulated the way they processed debit transactions in order to charge customers the most possible overdraft fees. In a major effort to get the case dismissed, the banks marshaled a posse of Big Law firms, including Covington & Burling, Morrison & Foerster, Wilmer Cutler, Strook & Strook & Lavan, and Arnold & Porter. But the claims were just too well pled to be dismissed, decided the judge.

While the plaintiffs are still a long way from a win, one advantage they have is that the underlying facts really aren't in dispute; the banks admit to manipulating the transactions to rake in fees. However, a majority of big banks reserve the right to do this in their contracts with consumers; that is, to post big transactions first, even if little transactions occurred first, in an effort to clean out your account and make as many transactions bounce as possible. (Did you sign up for that when you opened your checking account? Are you sure?)

If the plaintiffs ultimately win, the banks could collectively face a multi-billion dollar judgment. In 2008 alone, banks took in $24 billion in overdraft fees. Bank of America has apparently read the handwriting on the wall, and decided to end overdraft fees for debit cards by simply preventing charges from going through if an account is overdrawn. The Federal Reserve has also added a threshold protection that starts in July: Banks will no longer be able to automatically enroll you in overdraft protection; you'll have to affirmatively opt-in. Of course, once you're in, the banks can continue to process your transactions as they wish, unless the plaintiffs win this suit or Congress prohibits the practice.

If You've Got Drugs in Plain Sight, Have Sex Quietly

A New Jersey couple had such ecstatic sex that the neighbors called the police. The man greeted the cops at his door, dressed in his bathrobe, but rather than take his word that the commotion came from sex, the cops asked to speak with his girlfriend. She came downstairs, dressed in a towel, and confirmed the story. Still, the cops wanted to see some identification. The man went upstairs to get it, and the cops followed him inside; he didn't tell them to stay outside. En route to his id, they walked past marijuana, and the cops started searching, ultimately finding marijuana plants and 12.5 ounces of pot. The couple lost their motion to suppress the drugs, as the judge found the police acted reasonably.

Should Haiti Get a Waiver Allowing Corruption?

The Department of Justice has been vigorous in its enforcement of the Foreign Corrupt Practices Act of late, and has promised even stronger enforcement to come. But the Haiti earthquake is posing a policy conundrum. Haiti is a place where "pay to play" is reportedly mandatory; bribery is a way of life. American companies, worried about an FCPA suit, aren't competing for rebuilding contracts, even as our country pours in aid. So now some are arguing the U.S. should exempt Haiti from FCPA.

And in the Business of Law...

Above the Law reports that first year associates at K&L Gates in Boston are making more than second years, and associates aren't happy about it.

And Ruden McClosky's implosion continues . . . five more lawyers just left, on top of the 50 partners and two practice groups that have already split.

Originally published