A second Iowa bank is being sued over fees charged to its customers.

Late last year, Des Moines-based Bankers Trust was hit with a class-action lawsuit over a controversial set of fees charged to its customers.

Last week, Coralville-based Central State Bank was sued over its alleged practice of charging multiple overdraft fees for single transactions. The plaintiff’s attorneys allege that Central State Bank has used such fees to generate “substantial revenue, amounting to tens of millions of dollars,” as it seeks to “turn its customers’ financial struggles into revenue.”

State Central Bank has not yet filed a response to the lawsuit, and company officials there were unavailable for comment Friday. The bank has locations in Coralville, Cedar Rapids, Elkader, Marquette, Swisher and Walford and has more than $470 million in assets.

The lawsuit was filed on behalf of a single client, David Gray of Clayton County, but is seeking class action status on behalf of hundreds of clients. Attorneys for the plaintiff say the case involves potential damages of more than $5 million.

In court filings, the plaintiff’s attorneys note that in 2021, America’s largest financial institutions charged customers nearly $11 billion in overdraft fees. Customers who had an average balance of less than $350 paid 84% of these fees.

More recently, financial institutions such as Bank of America, Capital One, Wells Fargo and Alliant have announced plans to phase out such fees, which are sometimes called non-sufficient funds fees, or NSFs. These fees are imposed when purchases are made and the customer’s account balance cannot cover the expense.

According to the lawsuit, State Central Bank imposes a $32 “overdraft facility fee” on transactions, even when there is enough money in the customer’s account to cover the charges. The bank is also accused of illegally maximizing its “already lucrative fees” through a “deceptive and contractually prohibited practice” of charging multiple insufficient funds fees and overdraft fees for a single transaction.

Unbeknownst to consumers, when Central State Bank reprocesses a check for payment after it was initially rejected for insufficient funds, the bank “chooses to treat it as a new and unique item that is subject to yet another fee,” it claims the process.

Reprocessing is assumed to occur when a store or seller for whom payment was intended resubmits a payment request after it has been rejected for insufficient funds. Because payment requests can be retransmitted and then reprocessed without any involvement from the account holder, consumers have no control over the process.

In terms of disclosure, the suit claims that State Central Bank’s contract with customers allows the bank to either reject a transaction when there are insufficient funds in an account or simply pay the seller while charging the bank’s customer a fee of $32 overdraft in either case.

In practice, the lawsuit alleges, Central State Bank “regularly assesses two or more fees of $32 or $30 per item,” in violation of the contract. In this way, one transaction can result in fees of $96.

Gray alleges, for example, that on March 20, 2023, he attempted to make two separate payments, each for more than $300, by check. Central State Bank declined both transactions due to insufficient funds in Gray’s account and charged him two overdraft fees of $30 each. Two days later, the bank allegedly tried to process the two transactions again, rejected them again and charged two more overdraft fees of $30 each.

In addition to seeking class action status for their case, Gray’s attorneys are seeking damages for breach of contract and asking the court to order the bank to stop using those fees. Gray is represented by the West Des Moines law firm Shindler, Anderson, Goplerud & Reese.

Bankers Trust also sued commissions

last december a federal lawsuit was filed v. Bankers Trust, alleging that its practice of charging overdraft fees for debit card transactions authorized by the bank itself was prohibited by banking regulations.

This process focuses on the bank’s use of fees applied to so-called “Positive Authorization, Negative Settlement” or APSN transactions.

The practice works like this, according to the lawsuit: When a purchase is made from a merchant using a debit card, the bank immediately reduces the customer’s checking account balance by the amount of that purchase. The bank also sets aside the total dollar amount of the purchase, keeping that money in reserve for the merchant.

However, the bank will then impose a $33 overdraft fee on the transaction if, days later, when the bank transfers the reserved funds to the merchant, the customer’s funds are depleted and the account has a negative balance.

Essentially, the tax does not only apply to transactions for which there are no funds; it also applies to transactions for which the bank actually holds a customer’s cash in reserve to ensure payment.

Bankers Trust, which is the largest private community bank in Iowa, has responded to the lawsuit arguing that its customer contracts allow such fees to be charged.

In 2022, the federal government’s Consumer Financial Protection Bureau fined Regions Bank $191 millionfinding it “acted unfairly and abusively” in breach of the Consumer Financial Protection Act 2010 by assessing “surprise fees” that were not disclosed in customer contracts.

Also in 2022, the Federal Deposit Insurance Corporation determined that a bank’s practice of assessing more than one fee for the same transaction was a “deceptive and unfair act” and called for such practices to be completely stopped.

In 2023, the Consumer Financial Protection Bureau criticized banks’ imposition of multiple fees for single transactions when it stated that “institutions engaged in unfair acts or practices by charging consumers multiple FSN fees” and that the practice “caused a substantial monetary damage to consumers totaling millions of euros”. of dollars.”

This article first appeared in Iowa Capital Dispatch.