U.S. Bancorp (NYSE:USB) is the latest addition to the list of U.S. lenders forced to settle with disgruntled customers who took 35 of the country’s most prominent banks to court for wrongly charging them excessive overdraft fees.  The bank will shell out $55 million as part of this accord. A total of 14 banks have now settled with customers, including Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Citizens Financial – the U.S.-based banking subsidiary of the The Royal Bank of Scotland (NYSE:RBS). Notably, Wells Fargo (NYSE:WFC), Capital One Financial (NYSE:COF) and Citigroup (NYSE:C) are still holding their ground in similar lawsuits.
We maintain a $34 price estimate for U.S. Bancorp’s stock, in-line with its current market price.
The series of overdraft-related lawsuits were filed by customers over the banks’ practice of rearranging transactions to process the largest transactions first. As a larger transaction would put a customer’s account below zero faster, the overdraft fees would be charged on a greater number of transactions – on occasions generating more than 5 times the appropriate overdraft fees for banks.
The value at which banks settled these lawsuits with their customers in past months has varied quite a bit. Bank of America was among the first to settle, agreeing to pay the largest amount – $410 million (see Bank of America Settles Debit-Card Overdraft Lawsuit). More recently, Citizens settled for the second-largest amount of $137.5 million (see Citizens Throws In The Towel, Settles Overdraft Row) followed by a $110 million settlement by JPMorgan (see JPMorgan Gets a Bargain in Overdraft Settlement Deal).
U.S. Bancorp’s $55 million settlement should show up as a one-time expense in the bank’s Q2 2012 results.Notes: