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Published April 11, 2012, 11:30 PM

Overdrafts under scrutiny: Lawsuit claims Gate City manipulates debits, checks to maximize fees; bank says ‘absolutely not’

FARGO – Mike Chandler has banked with Gate City Bank since he moved to Fargo 11 years ago.

By: Helmut Schmidt, INFORUM

FARGO – Mike Chandler has banked with Gate City Bank since he moved to Fargo 11 years ago.

The steel fabricator admits that he and his wife are not CPA-perfect with their checking account. But in the past few years, Chandler has asked the bank a couple of times how they process his checks and debits.

Sometimes a big check will clear, and a bunch of small checks won’t, Chandler said Wednesday.

With a couple hundred dollars in overdraft charges paid to the bank in the past year, Chandler even asked a Gate City official directly: “Do you guys pull certain debits and cause an account to go red and hit it with fees?”

“No, absolutely not!” he said he was told.

But with news that Gate City faces a federal class action lawsuit claiming it gouges customers by manipulating check and debit processing to juice up overdraft fees, he’s wondering if he’s been had.

“It’s almost like you feel you have to keep one eye open about these guys,” Chandler said.

The lawsuit, filed April 3 by Amber Pieloor of Underwood, N.D., claims Gate City “batch files” its checks and debit card transactions, sequencing them so that the largest transactions are debited first. It’s a charge that dozens of banks around the country are facing, and some are being forced to pay hundreds of millions in settlements.

“It’s inaccurate what she’s saying. We do not do what she has said,” said Steve Swiontek, president and CEO of Gate City. “We do not post transactions in a way that is intended to get bigger fees.”

Transactions and deposits are recorded as they are received throughout the day, he said.

“We don’t have a batch at the end of the day,” Swiontek said. “The attorneys have got it all wrong. We don’t do it that way. We haven’t done it that way, nor are we intending to do it that way.”

By subtracting the largest denomination withdrawals, checks and debits from the account first, the practice can force several smaller transactions to go into overdraft, rather than one, and force multiple overdraft charges, rather than just one, court filings allege.

Also, by not crediting deposits as they happen, but instead crediting them after withdrawals are subtracted, the account can be artificially put into overdraft, the court filing says.

The lawsuit claims that there may be tens of thousands of people harmed by the alleged practice and that the amount in dispute tops $5 million.

The Gustafson Gluek law firm of Minneapolis is handling the case.

The Tostrud Law Group of Los Angeles is also listed on the documents. However, a representative for the firm said it has not officially been admitted to the case, and referred questions to Gustafson Gluek.

Attorney Jason Kilene of Gustafson Gluek refused to go on record when asked to comment on the case by The Forum.

However, he did later issue a statement by email:

“The complaint filed against Gate City asserts that the overdraft fees imposed by Gate City are unfair to the bank customers. We look forward to vindicating the rights of North Dakotans and Minnesotans who have paid these outrageous and unfair fees.”

Swiontek said Gate City has not yet been served with the lawsuit. The bank has 30 days to reply after being served. He said Pieloor’s attorneys haven’t approached the bank.

Attempts to reach Pieloor on Wednesday were unsuccessful.

Al Erickson, vice president and chief financial officer for Gate City, said the process of posting transactions to customer accounts is complex, with 10 to 15 files or groups of transactions coming in a day from sources including the Federal Reserve and Bank of North Dakota.

“We get checks in three different files a day,” he said.

Swiontek said the nature of the transaction may also affect the amount of time it takes to get posted.

A check can be scanned at a gas station and quickly debited on the account, he said.

A debit card transaction may also clear quickly, but a debit card transaction with a signature might not clear the bank until the next day, Swiontek said.

“You’ve got entities all over that are coming to banks and requesting these funds, and we do not prioritize or rank these,” Swiontek said.

“We’re going to vigorously challenge this and fight it because there’s no merit in the allegation,” he said.

Several superbanks around the nation have already settled cases involving overdraft fees, including JPMorgan Chase ($110 million), Bank of America ($410 million) and Wells Fargo ($203 million.)

Toronto Dominion Bank of Canada also faces a class-action lawsuit in federal court in Miami claiming it gouged customers on overdraft fees.

According to the website Bankoverdraft.com, there are at least 38 banks facing lawsuits for overdraft fees, and another eight being investigated for potentially charging improper or excessive overdraft fees.

Pieloor said in the filing that she’s been a Gate City customer in the past three years, and that she’s been harmed by the bank’s “unfair, deceptive and intentional practice of re-sequencing customers’ transactions to improperly over-assess overdraft fees.”

While Gate City Bank typically covers overdrafts, it also charges the overdraft fees, often $28 to $30, the filing says. Pieloor says she’s been repeatedly charged overdraft fees.

The actions are breach of contract, unjust enrichment and a violation of the North Dakota Unlawful Sales or Advertising Act, which is part of the state’s Century Code, the lawsuit contends.

Gate City Bank is a regional bank that reported assets of $1.2 billion in 2010. It is headquartered in Fargo and has 32 locations in North Dakota and Minnesota.

The plaintiff’s lawyers contend that banks and credit unions make enormous sums from overdraft fees. In 2008, those institutions collected nearly

$24 billion in such fees, a 35 percent increase from 2006, according to an article from the Center for Responsible Lending quoted in the court filing.


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Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583

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