KeyBank faces multiple lawsuits over excessive overdraft fees, but there is no verified settlement currently in place for the overdraft fee class action claims. Instead, federal courts have ruled that KeyBank can enforce arbitration clauses in customer agreements, which means affected customers must pursue complaints through arbitration rather than class action lawsuits.
For example, customers who had their debit card transactions reordered to maximize overdraft fees—a practice where higher-value purchases are processed before smaller ones, triggering more overdraft charges—have filed lawsuits in federal courts across multiple states, but legal proceedings have been complicated by these arbitration requirements. The situation with KeyBank’s overdraft practices represents a broader pattern in the banking industry where excessive fees accumulate through transaction ordering strategies. While KeyBank has made voluntary policy changes including reducing overdraft charges and capping daily fees, these modifications do not constitute a formal settlement with affected customers who incurred fees under the previous system.
Table of Contents
- What Were KeyBank’s Overdraft Fee Practices?
- What Lawsuits Have Been Filed Against KeyBank?
- How Do Arbitration Requirements Affect Customers?
- What Policy Changes Has KeyBank Made?
- Is There a Separate Data Breach Settlement?
- What Options Do Affected Customers Have?
- What Is the Current Status and Future Outlook?
- Conclusion
What Were KeyBank’s Overdraft Fee Practices?
Keybank‘s overdraft fee structure involved charging customers $35 per overdraft transaction, with some customers facing multiple charges on the same day depending on their transaction patterns. The bank used transaction reordering practices where debit card transactions were processed from highest to lowest amount, rather than in chronological order.
This practice meant that a customer who made five small purchases of $5 each while having $20 in their account might first have a $50 check processed, triggering an overdraft, and then each subsequent debit transaction would trigger its own $35 overdraft fee—potentially resulting in $175 in overdraft charges for transactions that would have cleared without fees if processed in order. Banks justify transaction reordering by citing operational efficiency, but consumer advocates and plaintiffs argue this practice is designed specifically to maximize overdraft fee revenue. According to the litigation, KeyBank’s approach meant customers could incur five or more overdraft fees in a single day, with some customers facing $100 to $300 in daily overdraft charges.
What Lawsuits Have Been Filed Against KeyBank?
Multiple lawsuits have been filed against KeyBank alleging that its overdraft fee practices violated consumer protection laws and constituted unjust enrichment. Cases have been filed in federal courts in Seattle and other jurisdictions, with customers claiming they were unknowingly charged excessive fees due to transaction reordering practices. These lawsuits seek damages and refunds for customers who paid overdraft fees between specific date ranges, depending on the individual case filing dates and statute of limitations.
However, a critical limitation has emerged in this litigation: A Florida federal judge has ruled in favor of KeyBank’s arbitration clause enforcement in overdraft fee cases, requiring that disputes be resolved through binding arbitration rather than in court. This ruling significantly impacts the viability of class action lawsuits, as it means customers must pursue individual arbitration claims instead of joining together as a class. This arbitration requirement limits customers’ ability to collectively pursue claims and potentially recover damages, making it more difficult to hold the bank accountable for widespread practices.
How Do Arbitration Requirements Affect Customers?
When a bank includes an arbitration clause in its customer agreement—which KeyBank does—customers contractually agree to resolve disputes through arbitration instead of court litigation or class actions. This means an affected customer cannot automatically join a lawsuit; instead, they must initiate a separate arbitration proceeding against the bank.
While arbitration is designed to be faster and less expensive than court proceedings, it also removes the transparency of public litigation and prevents the establishment of legal precedent that would apply to other customers facing the same practices. The enforcement of arbitration clauses represents a warning to consumers: even when lawsuits are filed against financial institutions, arbitration agreements may prevent individual customers from accessing group claims for relief. Customers who have been affected by overdraft fees must independently pursue arbitration claims, which requires filing separately and potentially hiring legal representation to argue their case before an arbitrator rather than a judge.
What Policy Changes Has KeyBank Made?
In response to consumer pressure and regulatory scrutiny, KeyBank announced significant changes to its overdraft fee structure, though these changes do not constitute a settlement with affected customers. The bank reduced its overdraft charge from $35 per transaction to $20 per transaction. Additionally, KeyBank eliminated NSF (Non-Sufficient Funds) fees entirely and implemented a cap of three overdraft charges per day, down from a previous maximum of five.
The bank also established a $20 negative balance threshold, meaning customers will not be charged an overdraft fee if their account balance is less than $20 in the negative. These changes represent an improvement for going-forward transactions, but they do not provide refunds or compensation for customers who already paid overdraft fees under the previous system. This distinction is important: policy changes protect future customers but do not remedy past harm. For customers who incurred substantial overdraft fees during the years KeyBank used transaction reordering, these new policies offer no financial relief or restitution.
Is There a Separate Data Breach Settlement?
It is important not to confuse KeyBank’s overdraft fee litigation with an unrelated data breach settlement. KeyBank reached a $6 million settlement related to a July 2022 data breach caused by a third-party vendor, Overby-Seawell Company. This settlement received preliminary approval on June 13, 2024, with a final approval hearing scheduled for December 9, 2024.
This settlement is completely separate from the overdraft fee lawsuits and addresses identity theft protection for customers whose personal information was compromised, not their financial losses from overdraft fees. Customers affected by the data breach may submit claims to the data breach settlement, but this provides no recovery for overdraft fee damages. This is a critical distinction because some consumers may conflate these two separate matters. The data breach settlement addresses cybersecurity failures, while the overdraft fee litigation addresses banking practices, and they involve different customer populations and types of harm.
What Options Do Affected Customers Have?
If you believe KeyBank charged you excessive overdraft fees through transaction reordering practices, your primary option is to pursue an individual arbitration claim against the bank. This requires initiating arbitration under the terms of your customer agreement, which typically involves submitting a demand for arbitration, gathering documentation of the overdraft charges you paid, and presenting your case to an arbitrator.
You should collect statements showing the transaction dates, amounts, and overdraft fees charged, as well as documentation that contradicts the order in which transactions were processed. Alternatively, some customers affected by overdraft fees may be within the window to file complaints with the Consumer Financial Protection Bureau (CFPB) or their state’s banking regulator. These complaints do not result in individual compensation but may contribute to regulatory pressure and investigations that could result in enforcement actions against the bank.
What Is the Current Status and Future Outlook?
As of now, no settlement has been reached specifically for KeyBank’s overdraft fee class action lawsuits. The litigation continues in federal courts, but its trajectory is uncertain given the court’s enforcement of arbitration clauses. This outcome differs significantly from some high-profile overdraft fee settlements at other major banks, where settlements have resulted in direct compensation to customers.
The banking industry has faced increasing scrutiny over overdraft fees, with regulators and consumer advocates pushing for stronger protections. KeyBank’s voluntary policy changes may be an attempt to head off regulatory intervention, but they do not provide a solution for customers who were harmed under the previous system. The overdraft fee issue is likely to remain an area of consumer litigation for years to come, as customers seek to recover losses and banks grapple with regulatory pressure to reform practices that generate substantial revenue.
Conclusion
KeyBank faces multiple lawsuits over excessive overdraft fees generated through transaction reordering practices, but arbitration clauses in customer agreements have limited the ability to pursue class action relief. Instead, affected customers must pursue individual arbitration claims, and KeyBank has made voluntary policy changes that benefit future customers without providing compensation for past harm. While KeyBank announced reductions in overdraft charges and eliminated NSF fees, no verified settlement amount has been reached for overdraft fee claims.
If you were charged excessive overdraft fees by KeyBank, document those charges and consider pursuing an arbitration claim or filing a complaint with your state banking regulator or the CFPB. Monitor the status of ongoing litigation, as new developments could affect your rights or create opportunities for recovery. The key lesson for all bank customers is to review account agreements for arbitration clauses and transaction ordering policies, which have significant implications for your ability to challenge bank fees.