Chase Cuts Overdraft Fees as Part of Class-Action Settlement

JPMorgan Chase (JPM) will stop charging customers overdraft fees for transactions under $5, as part of its efforts to settle a class-action lawsuit about its overdraft practices.

The New York bank is also joining several large competitors who have already dropped overdraft charges for small transactions or who will waive overdraft fees if customers do not overdraw their account by a certain amount on a daily basis, including SunTrust (STI), Wells Fargo (WFC) and U.S. Bancorp (USB).

"On the decision to charge overdraft and insufficient funds fee only on transactions of $5.01 or more, this is consistent with the SunTrust $5 per item threshold for overdraft fees," Jean Ann Fox, director of financial services at the Consumer Federation of America, said in an email Monday.

"For the other large banks with triggers, those are based on the total amount overdrawn at the end of the day. It still means that Chase is asking its customers to pay $34 to borrow $5.01," she added.

JPMorgan Chase in March also told customers it was reducing some fees for stopping payments or moving money from a linked account to cover overdrafts.

"We've made a number of recent changes to account policies and disclosures and fees to make it easier to bank with Chase," spokesman Patrick Linehan said.

JPMorgan Chase had earlier agreed to cut its overdraft charge for purchases of $5 or less for at least two years as part of a class action settlement agreement originally submitted in February. The fee cut will cost the bank an estimated $170 million in overdraft revenue, according to a May 22 filing with the court. The bank did not refer to the settlement when it notified its customers about the change, according to a customer form letter Linehan provided.

He said that the policy notice went out earlier this month to consumers because it will go into effect on July 22 regardless of the settlement, which has not been finalized.

As part of that deal, JPMorgan Chase agreed to pay $110 million to settle charges that it, along with 30 other banks, had been illegally reordering debit transactions from high-to-low to maximize the number of overdraft fees charged. Judge James Lawrence King of the U.S District Court for the Southern District of Florida gave the settlement preliminary approval on May 24, with a final settlement hearing set for Dec. 10.

The New York Times last week reported that a lead plaintiffs' attorney in the suit, Robert C. Gilbert, said that the bank had proposed the change on its own during settlement talks. When asked to confirm, Gilbert told American Banker that the issue was "misunderstood" by the reporter and wouldn't elaborate.

"We believe it is a very beneficial change for Chase's customers," Gilbert added in an email on Tuesday.

Linehan declined to comment because settlement talks have not been finalized.

JPMorgan Chase has also cut its fees for stopping payments in branches, to $30 from $34, and for stopping payments online or by telephone, to $25 from $27. It has also reduced its overdraft transfer fee to $10 from $12, according to Linehan. In December the bank said it was adopting more transparent disclosures and eliminating several other fees, including a $25 charge for accounts closed within 90 days of opening.

The newest fee reductions come as other banks are looking to raise overdraft and other checking account fees to help recoup debit interchange fees and other revenue lost due to recent industry regulations.

U.S. Bank recently announced that it is increasing its overdraft fees, and other banks, including Bank of America (BAC) and Wells Fargo, are raising the costs of checking accounts.

But some critics downplayed JPMorgan Chase's fee reductions, saying the changes just put the bank on par with many of its competitors.

"JPMorgan Chase is just adjusting its prices to get in line with everyone else," Mike Moebs of consultancy Moebs Services said in an email Monday. "Their stop payment was too high as well as their transfer fee."

The median stop payment fee for "mega banks" with $50 billion or more in assets is $30 and the median overdraft transfer fee is $10, according to Moebs.

"Overall Chase, US Bank, B of A, Wells Fargo and the rest of the mega banks' prices are too high but reflect their very high cost structures in retail delivery," compared to community banks and credit unions, Moebs said.

Fox expressed some reservations about JPMorgan Chase's decision to drop overdraft fees for small transactions.

"If you have not repaid the single overdraft loan in five consecutive business days, Chase charges a second "Extended Overdraft Fee" of $15," she said in an email Monday. "So the single $5.01 overdraft extension of credit costs a borrower $49 if repaid after six days or later. That is no bargain for consumers."

Fox noted that a $10 transfer fee is the norm among many of the larger banks, but she asked how that compares with what it actually costs the bank to make that transfer.

"No credit is extended by the bank and there is no risk of lost funds. This is simply a computer programming function. How can that possibly cost a bank $10 to $12.50 each time?" she said.