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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. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

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  3. You can put your photos anywhere you like... When someone steals it they know it doesn't belong to them. And, a man getting a divorce is automatically not a nice guy...? That's ridiculous. Since when is need of money a conflict of interest? That would mean that no one should have a job unless they are already financially solvent without a job... A photographer is also under no obligation to use a watermark (again, people know when a photo doesn't belong to them) or provide contact information. Hey, he didn't make it easy for me to pay him so I'll just take it! Well heck, might as well walk out of the grocery store with a cart full of food because the lines are too long and you don't find that convenient. "Only in Indiana." Oh, now you're passing judgement on an entire state... What state do you live in? I need to characterize everyone in your state as ignorant and opinionated. And the final bit of ignorance; assuming a photo anyone would want is lucky and then how much does your camera have to cost to make it a good photo, in your obviously relevant opinion?

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  5. Linda, I sure hope you are not seeking a law license, for such eighteenth century sentiments could result in your denial in some jurisdictions minting attorneys for our tolerant and inclusive profession.

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