Class-Action Lawsuits Are Pummeling Banks
Seiberg, Jaret, American Banker
Bank One, Columbus, bought collateral protection insurance for a borrower who let her own car insurance lapse. The bank now faces civil racketeering charges.
Citibank, South Dakota, charged California residents fees for paying their credit card bills late. It's now battling charges that it violated state consumer protection laws.
These are just two of hundreds of class-action suits filed against banks in the last few years by a plaintiffs' bar that some say sees the financial services sector as its next juicy target.
The suits are coming on every front - from credit card fees and collateral protection insurance to flood insurance.
While no exact estimate of the cost of this litigation is available, several lawyers put the price tag in the billions of dollars.
"This is a serious problem," said Alan Kaplinsky, a partner at the Philadelphia law firm of Ballard, Spahr, Andrews & Ingersoll. "It becomes a distraction for management and it can become very expensive to defend." It also is a problem that is likely to grow. Mr. Kaplinsky said more lawyers are entering this field since Congress passed a bill last year making it harder to win securities fraud suits.
Lawyers for consumers said bankers are to blame for this legal morass. "It is easy to blame the attorneys for bringing these cases while ignoring the greed of bankers," said Kathleen Keest, a lawyer at National Consumer Law Center.
Bankers impose fees without bothering to check if they are allowed by law or the loan agreements, said Daniel A. Edelman, who has sued more than 300 banks since 1986.
"If banks spend a small amount of money and time on compliance, they won't ever hear from me," said Mr. Edelman, a partner at Chicago's Edelman & Combs and dean of the consumer law bar. …