The judge deciding on final approval of Bank of America Corp. (BAC)’s $410 million settlement in a lawsuit challenging overdraft fees heard objections that the accord will pay customers too little and lawyers too much.
Critics before U.S. District Judge James Lawrence King in Miami attacked directing 12.5 percent of the money to programs in “financial literacy.” That provision was included because computerized records don’t exist for the years 2001 to 2003 so customers can’t be identified.
That money should go to identified payers of excessive fees who don’t stand to be fully reimbursed under the present plan, Elliot Kula, a lawyer for six objectors, told the judge.
“It seems to us to be a giveaway to Bank of America’s public relations team,” Kula said.
Under the settlement, known customers would receive 9 cents to 45 cents on the dollar for their claims, according to lawyers for both sides.
The size of the attorneys’ fees, $123 million, or 30 percent of the full amount, was challenged by objectors’ lawyer Paul Kade.
“Because of the large amount involved, we should not blindly apply the 30 percent rule,” he said, referring to a rule of thumb used in the settlement agreement.
A fairer amount would result from the judge’s basing the award on the time lawyers spent on the case, he said.
King is hearing both defenders and objectors today. He hasn’t said when he will rule. He did tell objectors he plans to read new material they submitted to support their positions.
Lawyers for the plaintiffs and the bank defended the accord.
“The settlement is fair, it is adequate, and it’s reasonable,” said Aaron Podhurst, the lead plaintiff’s attorney.
He described legal complications that he said meant a victory at trial wasn’t guaranteed.
“Even if we were able to win a verdict against Bank of America, there can never be a guarantee it would stand on appeal,” he said.
Bank of America’s attorney called the settlement fair to customers, noting that only about 350 of the 13.2 million people covered by the agreement opted out and fewer than 50 objections were filed.
“It’s very easy to say from the sidelines, ‘I could do better,’ no matter what the result,” attorney Laurence Hutt said.
At issue in the case was the automatic charging of overdraft fees for debit card transactions to about 13.2 million customers. Consumers in this lawsuit and cases against other banks, including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), claimed the banks processed transactions in a way that made it more likely that payments would trigger overdraft fees.
The Federal Reserve last year established rules barring lenders from automatically charging fees when consumers have insufficient funds for electronic or debit transactions.
The bank has changed its transaction processing policies since the cases were filed in 2009. Consumers are no longer charged overdraft fees on debit transactions, and they pay smaller penalties than previously for overdrawing their checking accounts.
Union Bank NA, based in San Francisco, agreed to settle the same claims with its customers for $35 million, according to a court filing last week.
The case is In Re Checking Account Overdraft Litigation, 1:09-md-02036, U.S. District Court, Southern District of Florida (Miami).
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