Susquehanna Bancshares, Inc.
) announced the settlement of a lawsuit, which was filed by two
of its New Jersey customers, by paying $3.7 million. The lawsuit
accused the bank of manipulating overdraft fee related
activities. However, the settlement was officially agreed upon in
December, but disclosed by the bank on Wednesday.
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The lawsuit is pending before the U.S. District Court Judge,
Lawrence King of the Southern District of Florida for final
approval. Other cases related to the consolidated multidistrict
litigation remain pending, including cases against
Wells Fargo & Company
M&T Bank Corporation
Susquehanna was accused of manipulating transaction entries to
generate hefty overdraft fees. Transactions were re-sequenced by
the bank so that the largest withdrawals were deducted first
instead of being cleared in the order in which these were
As a result, customers' balances diminished faster, resulting in
a larger number of overdrawn transactions, each of which then
Notably, an overdraft occurs when withdrawals from a bank account
exceed the available balance. In such cases, banks charge fees
for the overdrawn transactions from the account holders. With the
regulatory restriction on debit card usage fee, overdraft fees
have become an important revenue driver for banks.
Previously, in case of insufficient funds, checks were returned
and the account holders had to bear a charge. However, banks
found it easier to generate revenues through overdraft fees by
allowing customers to overdraw their accounts by debit purchases,
ATMs, or through any other electronic payment gateways.
However, in many cases, customers were unaware of the details of
such fees and things came to light only after they were charged.
This was one of the major complaints that customers filed against
banks since the onset of the financial crisis.
Nevertheless, according to the new regulation passed in 2010,
banks will not be able to charge such hefty fees without
informing the account holders. In fact, as per new federal laws,
the customer's permission is mandatory before allowing any
The overdraft lawsuit settlement will help reduce Susquehanna's
litigation overhang to some extent. The bank anticipates the
aggregate settlement amount not to adversely affect the results
of operation, financial position, or cash flows. However, it will
drain the company's funds besides denting its image.
Susquehanna is not the only institution to settle such a lawsuit.
In fact, several banks have been sued on similar grounds, the
Bank of America Corp.
), which made a settlement worth $410 million.
Susquehanna currently retains a Zacks Rank #3 (Hold).