M&T Bank faced a $4 million class action settlement in 2015 over overdraft fee practices that harmed hundreds of thousands of customers between 2006 and 2010. The settlement resolved claims that the bank deliberately reordered customer transactions to post the largest debits first—a practice designed to maximize the number of overdraft fees charged on smaller transactions that would have otherwise cleared. For example, a customer with $500 in their account who made five purchases of $50 each, plus one purchase of $300, would see the $300 deducted first, causing the smaller purchases to trigger overdraft fees even though the day’s total spending would have fit within the available balance.
The lawsuit addressed a systematic problem in how M&T Bank processed transactions. Rather than clearing transactions in the order customers made them, the bank sorted them by size, ensuring maximum fee exposure. Customers who should have had adequate funds discovered unexpected overdraft charges appearing on their statements, often triggering cascading fees that multiplied the damage to their accounts.
Table of Contents
- What Was the M&T Bank Overdraft Fee Class Action About?
- How Did M&T Bank’s Transaction Reordering Harm Customers?
- The Settlement Distribution and Impact
- M&T Bank’s Fee Reduction and Current Practices
- Current Litigation Status and Industry Context
- What the M&T Bank Settlement Reveals About Consumer Protection
- Lessons for Current M&T Bank Customers and Future Banking Practices
- Conclusion
What Was the M&T Bank Overdraft Fee Class Action About?
The M&T bank overdraft settlement stemmed from transaction reordering practices that the bank employed during the eligible period of August 21, 2006, through August 15, 2010. The federal court approved the settlement on March 4, 2015, and distributions were made to eligible customers through automatic account credits in 2015. The $4 million settlement reflected the cumulative impact of the bank’s practices across hundreds of thousands of accounts during this four-year window.
Unlike some overdraft cases that focus on undisclosed fees or inadequate warnings, the M&T Bank case centered on the deliberate sequencing of how transactions posted to customer accounts. Internal bank procedures instructed employees to sort transactions by amount rather than chronological order, which fundamentally altered when overdrafts occurred. A customer might make purchases throughout the day in one order, but M&T would process them in a completely different sequence, engineering situations where overdraft fees would be triggered when they wouldn’t have been under normal processing.
How Did M&T Bank’s Transaction Reordering Harm Customers?
The transaction reordering practice had a direct, quantifiable impact on customer finances. Customers who maintained what they believed was an adequate balance discovered they were being charged overdraft fees for transactions that should have cleared without penalty. The reordering meant that the bank’s version of a customer’s account activity bore no resemblance to the actual sequence of spending, making it nearly impossible for customers to accurately predict their account status.
Consider a practical scenario: A customer deposits $1,000 on Friday morning and makes the following transactions that day: a $50 coffee purchase at 9 a.m., a $75 lunch purchase at noon, a $200 grocery purchase at 2 p.m., and a $500 rent transfer at 5 p.m. In chronological order, all these transactions clear the available balance. However, M&T Bank would post the $500 rent payment first, leaving $500 in the account, which then covers the $200 and $75 purchases but not the $50 coffee—triggering an overdraft fee. The customer made all their purchases in an order that worked within their balance, but the bank’s resequencing created artificial overdrafts.
The Settlement Distribution and Impact
When the settlement reached final approval on March 4, 2015, eligible customers—those who held M&T Bank accounts during the 2006-2010 period and incurred overdraft fees—became entitled to compensation. Rather than requiring customers to file individual claims, the settlement used automatic distribution, meaning M&T Bank identified eligible accounts and credited the money directly. This automatic approach was significant because it meant customers didn’t lose money due to missed deadlines or failure to submit claim forms, a common problem in class action settlements.
The $4 million distribution across the eligible class meant individual payments varied depending on how many overdraft fees each person had been charged and how long they held an account at the bank during the eligible period. Some customers received hundreds of dollars in credits, while others received smaller amounts. The bank applied these credits directly to customer accounts, with payments made in 2015 following the court’s approval.
M&T Bank’s Fee Reduction and Current Practices
More recently, M&T Bank has substantially modified its overdraft fee structure, responding to both regulatory pressure and competitive market forces. Starting in 2023, the bank reduced its overdraft fee from $36 to $15 per overdraft—a 58% reduction that reflects the broader industry trend toward lower overdraft charges. This change signals recognition that $36 overdraft fees were unsustainable and damaging to customer relationships.
Beyond the headline fee reduction, M&T Bank eliminated non-sufficient fund (NSF) fees—charges that were previously applied when transactions were declined due to insufficient funds. The bank also discontinued overdraft protection transfer charges that applied when customers had linked savings accounts. These combined changes mean that a customer who overdrafts their checking account now faces only the $15 fee, without additional penalties or escalating charges. However, the comparison to the historical $36 fee shows how aggressively M&T had been charging customers before the reduction, and how the settlement litigation likely influenced this market response.
Current Litigation Status and Industry Context
As of 2024, no active M&T Bank overdraft class actions are documented in current litigation. The bank’s recent fee reductions and practice changes have eliminated the most egregious complaint areas that characterized the 2006-2010 period. However, overdraft fee litigation has not disappeared from the banking industry—it has shifted to other institutions with similar harmful practices.
Current overdraft class actions involve banks like Regions Financial, Truist Bank, TD Bank N.A., and Frost Bank, many of which employ what’s known as “authorize positive, settle negative” practices. These banks authorize transactions based on the account’s available balance at the time of authorization, but then settle those transactions at a later point, creating overdrafts on accounts that had sufficient funds when the purchase was made. While different in mechanism from M&T’s transaction reordering, the effect is similar: customers are charged fees for overdrafts that wouldn’t have occurred under normal, chronological processing. This pattern suggests that overdraft fee practices remain an area of substantial consumer litigation risk for banks.
What the M&T Bank Settlement Reveals About Consumer Protection
The M&T Bank case illustrates how banking practices can be systematically unfair in ways that aren’t immediately obvious to customers. Many customers never realized their accounts were being manipulated through transaction reordering—they simply accepted the overdraft fees as an unfortunate but normal part of banking. The settlement required a court to establish that the practice was intentional and harmful, and then to quantify the damages across a large customer base.
This case also demonstrates the importance of class action lawsuits in consumer protection. Individual customers harmed by transaction reordering would likely never have the resources to pursue litigation alone, and M&T Bank had no market incentive to change practices that were generating significant fee revenue. Only through aggregated litigation did enough pressure accumulate to force both a settlement and eventual voluntary practice changes. The automatic distribution approach used in this settlement also set a valuable precedent: when a court-approved settlement exists, customers shouldn’t have to jump through hoops to receive their compensation.
Lessons for Current M&T Bank Customers and Future Banking Practices
Today’s M&T Bank customers benefit from the lower overdraft fees and practice changes that emerged partly as a result of the 2006-2010 settlement and subsequent industry scrutiny. However, the history of this case serves as a reminder that overdraft policies remain an area where banks have significant financial incentives that may conflict with customer interests. The $15 overdraft fee is still substantial—a single overdraft can trigger a permanent charge for a transaction worth $5 or $10.
Going forward, customers can expect continued pressure on overdraft fees as banks compete for market share and regulators scrutinize these practices. The shift in overdraft litigation from M&T to other banks suggests that harmful practices persist elsewhere, even as this particular bank has reformed. Consumers should remain vigilant about understanding how their banks process transactions and calculate overdrafts, and should review their statements for unexpected fees that may reflect unfair banking practices.
Conclusion
The M&T Bank overdraft fee class action settled in 2015 over practices that systematically harmed customers through transaction reordering between 2006 and 2010. The $4 million settlement and subsequent fee reductions represent both a victory for affected customers and a broader shift in how the banking industry manages overdraft policies. While M&T Bank no longer faces active litigation over these practices, the case remains relevant because similar harmful overdraft practices continue at other institutions.
If you held an M&T Bank account during the 2006-2010 eligible period, you may have already received compensation through the automatic settlement distribution in 2015. If you have questions about whether you were included or want to verify the credit applied to your account, contact M&T Bank customer service with documentation of your account during that period. For current M&T Bank customers, the reduced $15 overdraft fee and elimination of NSF charges represent a significantly improved fee structure, though avoiding overdrafts remains the best strategy for protecting your account balance.