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First Merchants Bank accused of overdraft fee violations

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A lawsuit alleges that Muncie-based First Merchants Bank manipulated the timing of customers’ transactions to cause their checking accounts to bounce more frequently, generating millions of dollars in overdraft fees.

The suit, which seeks class-action status, was transferred May 23 to U.S. District Court for the Southern District of Indiana.

Plaintiff Brenda Lear, of Trafalgar, originally filed the suit last month in Delaware Circuit Court.  But attorneys for First Merchants filed to transfer the case to federal court in Indianapolis, saying some of the customers also reside in Ohio and that the amount of money at issue likely exceeds $5 million.

The lawsuit seeks unspecified dollar damages for “thousands” of First Merchants customers. The bank has branches in two dozen Indiana counties, and employs about 275 people at numerous locations in the Indianapolis metro area.

The suit alleges the bank, using sophisticated software, reordered electronic debit transactions from highest-to-lowest dollar amounts, and processed debits before credits to deplete a customer’s available funds “as quickly as possible.”

Customers paid a $35 fee for each overdraft.

The suit says the bank sought to maximize the number of overdraft fees, as well. It cites, as an example, a customer who had an account balance of $100 and made four debit transactions during one day, of $10, $10, $10 and $95.

If processed in order of when the debits were made, the $95 charge would have been made against a $70 balance, resulting in a single overdraft fee. But Lear alleges the bank’s software would read the $95 transaction first and each $10 transaction thereafter — resulting in three total overdraft fees.

The complaint also alleges First Merchants manipulated transactions so that many customers’ accounts were not actually overdrawn, “either at the time of the debit transaction or at the time the overdraft fees were charged.”

“This automatic, fee-based overdraft scheme was intentionally designed to maximize overdraft fee revenue for FMB,” states the complaint.

Neither First Merchants nor its attorneys at Bingham Greenebaum Doll could be reached for comment.

Banks have been coming under more scrutiny regarding overdraft fees. Earlier this year, Wells Fargo was ordered to pay $203 million to settle class-action litigation accusing it of imposing excessive fees. In a separate case, Bank of America Corp. paid $410 million and JP Morgan Chase paid $210 million to settle similar litigation.

Nationwide, banks collected $32 billion in overdraft charges in 2012, according to Moebs Services. The suit points to Federal Deposition Insurance Corp. data that for the typical bank, overdraft fees amount to 74 percent of total service charges on deposit accounts.

Lear’s local counsel is Kathleen Farinas of Indianapolis-based law firm George & Farinas LLP. Also representing Lear is the New York law firm of Squitieri & Fearon LLP, which is no stranger to bringing such overdraft cases.

In February, Squitieri & Fearon won a $3 million settlement with First National Bank of Pennsylvania, over nearly identical allegations of deposit account data manipulation. A federal court ordered the parties into mediation.

The Pennsylvania bank denied the allegations but cited the prospect of years of costly litigation for agreeing to the settlement.

First Merchants stands to become the second-largest Indiana-headquartered bank, with the planned merger with Munster-based CFS Bancorp., announced earlier this month.

First Merchants will grow to $5.4 billion in assets from $4.2 billion. That compares with the $9.5 billion-asset Old National Corp., of Evansville, which is the largest Indiana-based bank.

After the merger, First Merchants will have nearly 100 offices in 26 Indiana counties, along with a presence in Ohio and Illinois.

It stepped up its central Indiana presence in 2008, when it bought Lincoln Bancorp., in Plainfield.

Last year, First Merchants bought loans and deposits of the failed SCB Bank of Shelbyville.
 

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  1. Call it unauthorized law if you must, a regulatory wrong, but it was fraud and theft well beyond that, a seeming crime! "In three specific cases, the hearing officer found that Westerfield did little to no work for her clients but only issued a partial refund or no refund at all." That is theft by deception, folks. "In its decision to suspend Westerfield, the Supreme Court noted that she already had a long disciplinary history dating back to 1996 and had previously been suspended in 2004 and indefinitely suspended in 2005. She was reinstated in 2009 after finally giving the commission a response to the grievance for which she was suspended in 2004." WOW -- was the Indiana Supreme Court complicit in her fraud? Talk about being on notice of a real bad actor .... "Further, the justices noted that during her testimony, Westerfield was “disingenuous and evasive” about her relationship with Tope and attempted to distance herself from him. They also wrote that other aggravating factors existed in Westerfield’s case, such as her lack of remorse." WOW, and yet she only got 18 months on the bench, and if she shows up and cries for them in a year and a half, and pays money to JLAP for group therapy ... back in to ride roughshod over hapless clients (or are they "marks") once again! Aint Hoosier lawyering a great money making adventure!!! Just live for the bucks, even if filthy lucre, and come out a-ok. ME on the other hand??? Lifetime banishment for blowing the whistle on unconstitutional governance. Yes, had I ripped off clients or had ANY disciplinary history for doing that I would have fared better, most likely, as that it would have revealed me motivated by Mammon and not Faith. Check it out if you doubt my reading of this, compare and contrast the above 18 months with my lifetime banishment from court, see appendix for Bar Examiners report which the ISC adopted without substantive review: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS

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