According to a Bloomberg report, the customers of PNC Financial Services Group Inc.‘s (PNC) principal subsidiary, PNC Bank, have own class certification from the court over the lawsuit that alleged the company of adopting improper practices with respect to its overdrafts. It was found that the customers’ claims and allegations were directed to the same practice applied by the bank.
The Allegation
PNC is accused of manipulating transaction entries to generate greater 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 they were received.
As a result, customers’ balances diminished faster, resulting in a larger number of ‘overdrawn’ transactions, each of which then became chargeable.
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 a rise in debit card usage, overdraft fees have become an important revenue driver for banks.
Previously, if there were 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 a case, customers were unaware of the details of such fees and things came to light only after being charged. This was one of the major complaints made by customers against banks since the onset of the recent financial crisis.
Our Take
We believe the winning of the class certification will help customers sue the company efficiently besides helping them to reduce costs. Otherwise, suing the company on an individual basis would drain out more funds than they could expect to recoup from damages. If PNC customers can make their way through the claims and reach any settlement, then the company’s funds would be drained from paying penalty.
Several banks have been sued on similar grounds. Notably, in the past one year, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) have agreed to pay millions to settle such claims.
PNC Financial retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation. Considering its fundamental, we also have a Neutral recommendation on the stock.
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