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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. Bob Leonard killed two people named Jennifer and Dion Longworth. There were no Smiths involved.

  2. Being on this journey from the beginning has convinced me the justice system really doesn't care about the welfare of the child. The trial court judge knew the child belonged with the mother. The father having total disregard for the rules of the court. Not only did this cost the mother and child valuable time together but thousands in legal fees. When the child was with the father the mother paid her child support. When the child was finally with the right parent somehow the father got away without having to pay one penny of child support. He had to be in control. Since he withheld all information regarding the child's welfare he put her in harms way. Mother took the child to the doctor when she got sick and was totally embarrassed she knew nothing regarding the medical information especially the allergies, The mother texted the father (from the doctors office) and he replied call his attorney. To me this doesn't seem like a concerned father. Seeing the child upset when she had to go back to the father. What upset me the most was finding out the child sleeps with him. Sometimes in the nude. Maybe I don't understand all the rules of the law but I thought this was also morally wrong. A concerned parent would allow the child to finish the school year. Say goodbye to her friends. It saddens me to know the child will not have contact with the sisters, aunts, uncles and the 87 year old grandfather. He didn't allow it before. Only the mother is allowed to talk to the child. I don't think now will be any different. I hope the decision the courts made would've been the same one if this was a member of their family. Someday this child will end up in therapy if allowed to remain with the father.

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  4. The judge thinks that she is so cute to deny jurisdiction, but without jurisdiction, she loses her immunity. She did not give me any due process hearing or any discovery, like the Middlesex case provided for that lawyer. Because she has refused to protect me and she has no immunity because she rejected jurisdiction, I am now suing her in her district.

  5. Sam Bradbury was never a resident of Lafayette he lived in rural Tippecanoe County, Thats an error.

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