Waterbury-based Webster Bank has agreed to pay nearly $3 million to settle a class action lawsuit, which alleged that the bank manipulated customers’ account debits in a way that maximizes overdraft fees.
Webster said it agreed to the payment to “fully and finally resolve the litigation,” which was filed in Superior Court in Waterbury in April, “and avoid any further expense and distraction.”
In the suit, Kelly Mathena, a Webster Bank customer from Middlebury, alleged that the bank routinely posts checks and ATM withdrawals against customers’ accounts so they generate overdraft fees, even when accounts have a positive balance.
Mathena said Webster does this by re-ordering debit transactions from the highest dollar amounts to the lowest, to drain the accounts as quickly as possible and maximize fees.
She said in her suit that Webster could stop debits from going through when the account balance drops below a certain threshold, or at least warn customers they lack sufficient funds to cover the debits.
Her suit said the scheme was “extremely profitable” for Webster and other U.S. banks, citing federal banking data that lenders rack up more than $27 billion in overdraft fees annually.
Despite the $2.8 million settlement, Webster Bank said it “continues to believe its practices were both proper and lawful.”
The settlement will also resolve a similar class action currently pending in New York.
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