Bankers Trust is headquartered in downtown Des Moines, Iowa. (Photo via Google Earth)
An Iowa bank that’s facing a potential class-action lawsuit related to its controversial use of overdraft fees says its customer contracts permit the collection of such fees.
Last December, a federal lawsuit was filed against Bankers Trust, alleging that its practice of charging overdraft fees on debit-card transactions authorized by the bank itself was barred by banking regulations.
The lawsuit centers on the bank’s use of fees applied to so-called “Authorize Positive, Settle Negative” transactions, or APSN transactions.
The practice works this way, according to the lawsuit: The moment 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 full dollar amount of the purchase, holding 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 forwards the reserved funds to the merchant, the customer’s funds are depleted and the account shows a negative balance.
Essentially, the fee isn’t applied only to the transactions for which there are no funds; it’s also imposed on transactions for which the bank is actually holding a customer’s cash in reserve to ensure payment.
The lawsuit alleges these “crippling” overdraft fees are unwarranted because a customer’s balance is always adjusted, in real-time, to account for every debit-card transaction at the precise instant the transaction is made. “Indeed,” the lawsuit alleges, “the entire purpose of the immediate debit and hold of positive funds is to ensure that there are enough funds in the account to pay the transaction.”
The lawsuit alleges that while many banks and credit unions “that employ this abusive practice require their accountholders to expressly agree to it” when they open an account, Bankers Trust never did.
In response, Bankers Trust has filed court papers indicating its customer contracts don’t support that claim. The bank alleges the contracts “unambiguously” state that Bankers Trust may impose an overdraft fee at the time a transaction is processed — rather than authorized — by the bank, even if the processing happens hours or days after the bank authorized the transaction.
The plaintiff’s attorneys in the case argue that nearly 70 courts nationwide have found that the contract language used by Bankers Trust does not unambiguously permit the imposition of such fees.
Rather than holding funds in reserve to pay for transactions the bank has authorized, the plaintiff argues, Bankers Trust regularly allows subsequent transactions to consume the available balance “and then charges overdraft fees on the previously authorized transactions.”
The plaintiff in the case, Stephanie Jones of Iowa, was assessed overdraft fees of $33 each on Nov. 18, 2022, and May 8, 2023, the lawsuit alleges. Those fees were imposed on debit-card transactions that had been authorized by Bankers Trust due to the availability of sufficient funds in Jones’ account, the lawsuit claims.
The fees were not imposed in error, but were intentional charges made in accordance with Bankers Trust written policies and routine practices related to APSN fees, the petition states.
The lawsuit seeks class-action status to represent not only Jones but all other Bankers Trust customers who have been subjected to APSN overdraft fees. It seeks unspecified damages for breach of contract and violations of the federal Electronic Funds Transfer Act.
The case is expected to go to trial in June 2026.
Consumer group says fees are ‘deceptive’
As part the lawsuit, lawyers for Jones note that in 2021, the largest financial institutions in America charged customers almost $11 billion in overdraft fees. Customers who carried an average balance of less than $350 paid 84% of those fees, the lawsuit claims.
While some banks, including Bank of America, Capital One, Wells Fargo and others – have taken steps to eliminate such fees – some have not. The lawsuit claims Bankers Trust continues to assess overdraft fees on APSN transactions and that the bank “has made substantial revenue — to the tune of tens of millions of dollars — seeking to turn its customers’ financial struggles into revenue.”
The Consumer Financial Protection Bureau has called APSN fees “unfair” and “deceptive,” noting that consumers typically have no reason to anticipate such fees since they aren’t always disclosed to consumers.
In October 2022, the bureau warned that even if a consumer closely monitors their account balance and carefully calibrates their spending, they can easily incur an overdraft fee. When a customer checks their account balance online or at an ATM, the amount displayed may be sufficient to cover their planned purchases — but the balance in the account may not be sufficient to cover the purchases days later when the bank chooses to process the transactions.
Bankers Trust is headquartered in Des Moines and is the state’s largest privately held community bank. In addition to 12 branches serving central Iowa, Bankers Trust has branches in Cedar Rapids and Phoenix, Arizona, as well as an office in Omaha, Nebraska.
Jones is represented by attorney Roxanne Conlin of Des Moines as well as lawyers working for other out-of-state firms.