Umpqua Bank to stop criticized overdraft practice

— Umpqua Bank says it will halt a practice that consumer advocates, customers and at least one federal judge claimed artificially inflated banking revenues.

In a Sept. 16 letter to customers, Umpqua executive vice president for community banking Ric Carey said the Portland-based bank will change the order in which it processes and posts debit transactions to checking accounts, The Oregonian reported.

Transactions will be ordered from smallest to largest when made by check, debit or wire transfer, online, or at ATMs and point-of-sale locations such as stores.

Previously, the bank could reorder the transactions from largest to smallest. Consumer advocates argue such reordering is unfair when a large transaction exceeds the account balance and then overdraft fees are charged for each subsequent smaller transaction.

Big banks defended the practice, saying customers wanted their larger transactions processed first. Umpqua's letter said, "There is no policy that is favorable in every instance."

Customers also have targeted the practice in class-action lawsuits against U.S. Bancorp and Wells Fargo & Co. A federal judge in California recently ordered Wells Fargo to pay customers more than $200 million for what he considered unjust and deceptive overdraft practices.

"Wells Fargo constructed a trap - a trap that would escalate a single overdraft into as many as 10 through the gimmick of processing in descending order," U.S. District Judge William Alsup wrote in a 90-page ruling.

The judge said the trial record showed that "depositors do not prefer high-to-low posting, that there is no net benefit, and that the bank's actual motive in imposing a high-to-low regime was to multiply the number of overdrafts and thereby increase its overdraft revenue."

Umpqua's letter did not clearly say why the bank was making the change, which is effective Oct. 16.

"We do not encourage you to regularly overdraw your account," Carey wrote.


Information from: The Oregonian,

The Associated Press