Customers Sue Banks for Compliance

I have noticed a new trend in the conflict between banks and consumers.  Customers are suing their banks for a variety of reasons and these lawsuits are starting to become problematic for banks.  It seems that consumers are tired of the predatory treatment and they are taking their grievances to court.  And, the courts appear to be sympathetic to consumers, especially in cases where the bank’s activities defy any reasonable sense of fairness.

Normally, I’m not a big fan of civil suits.  These types of lawsuits are often baseless and unwarranted.  They amount to obvious extortion, by the crass and the irresponsible.  But, there are instances where justice and regulation have failed.  And, the only recourse available is to sue for damages.  The civil case against O. J. Simpson is an example which comes to mind.  Judgments have also been effective in cases against polluters, wrongful deaths and perpetrators of harassment and discrimination.  So, civil suits can offer some consolation, as a choice of last resort.

Lawsuits for Loan Modifications

Lady Justice

Photo by Frog Miller

A study conducted by the Federal Reserve of Boston found that payment-reducing modifications were received on only about 3 percent of seriously delinquent loans.

There are a suspiciously high number of lost applications, resubmission requests and denials based on questionable criteria.  It is obvious to anyone who has gone through the loan modification process that banks are simply stonewalling the requests and Congress has no effective way to force their compliance.  But, after some frustrating years without progress, that is quickly starting to change.

The federal government’s Home Affordable Modification Program (HAMP) has been passed in order to increase modification compliance and to stem the foreclosure that are undermining our economy.  This seems to have increased the number of trial modifications.  But, the 2009 HAMP numbers show only 31 thousand of the 3.1 million loans have been permanently modified.

The individual lawsuits, which haven’t gotten much attention, are now seeking class-action status, in an effort to bring relief to more homeowners.   The Attorney General from many states are adding pressure to banks, which are finally starting to talk about “principal forgiveness” for some customers.  Unless banks take the loan modification process seriously, I expect the lawsuits to increase and the judgments to become larger.

Lawsuits for Overdraft Fees

According to the Miami Herald, customers from all over the country are suing a number of banks for excessive overdraft fees.  These lawsuits were filed against most of the major banks and they were consolidated in federal court in Miami.  Banks tried to get the lawsuits dismissed, claiming that customers had no right to sue over their fees.  But, U.S. District Judge James Lawrence King disagreed and threw out the bank’s request to drop the lawsuits.

Here are the judge’s comments:

“Specifically, plaintiffs claim they are not challenging the bank’s right to charge overdraft fees.  Instead, they are challenging the banks’ practice of manipulating the overdraft fees, in order to maximize a benefit to them and to the great detriment of the parties who are their account holders.”

I’m certainly no legal expert.  But, it seems unjust to customers when banks reorder transactions to maximize overdraft fees.  And, since overdraft fees generated by banks are in the Billions of dollars each year, the damages from these lawsuits could be substantial.  There is already a $35M settlement in Closson v. Bank of America.  And, I suspect this case was settled to avoid a precedent.  This is likely just the beginning.

The Bottom Line

The bottom line is that customers may have finally found an effective way to hold banks accountable for their devious practices.  It’s a shame consumer’s rights were neglected for so long and they had to resort to lawsuits.  But, banks don’t seem to respect the rights of consumers or the intent of the latest regulations.  Litigation may be the only way to get their attention.

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes, Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

Napoleon Bonaparte – Emperor of France

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3 comments to Customers Sue Banks for Compliance

  • Bret, I’m with you on lawsuits, they usually have a less than holy purpose. But in the case of the banks, it may be the only way to get their attention.

    Unfortunately, there are too many banks that stopped treating their customers like customers a long time ago. We can blame ourselves for our unswerving loyalty, but something has to give.

    Intereting that you brought up the OJ Simpson case. My sense has always been that that case exposed the flaws in the American legal system for all the world to see. After a jury couldn’t convict him of a crime, a civil court awarded the plaintiffs a big settlement. The same case with the same parties, but a very different outcome.
    .-= Kevin@OutOfYourRut´s last blog ..Payoff Your Credit Cards – But Set the Stage FIRST =-.

    • Kevin,

      It’s not only the banks. I think most American companies look at customers like marks. Instead of providing superior products and service, they are just looking for ways to prey on their customers.

      I picked the OJ example for a reason. Obviously, the criminal trial was a miscarriage of justice. But, I have always thought it was ironic how OJ lost his memorabilia in the civil suit and then got convicted for trying to steal it back. It’s like karma and arrogance finally brought him down. I’m hoping the same thing happens to the banks.

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