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Gate City Bank agrees to pay $5.5M settlement in lawsuit alleging ‘abusive’ overdraft fees

The class-action lawsuit alleges that Gate City Bank improperly assessed non-sufficient funds and overdraft fees, allegations the bank denies. Gate City admits to no wrongdoing in the settlement agreement.

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Gate City Bank in downtown Fargo on April 28, 2022.
Chris Flynn / The Forum
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FARGO — Gate City Bank has agreed to pay $5.5 million to settle a class-action lawsuit alleging the bank breached its agreement with account holders by charging multiple non-sufficient funds or overdraft fees.

The proposed settlement has not yet been approved by a judge, and Gate City Bank does not admit any wrongdoing under the agreement reached in the case, pending in Cass County District Court.

Accusations that Gate City Bank has improperly assessed overdraft and non-sufficient funds have occurred over the past decade. The bank has $3.1 billion in assets and is based in Fargo with offices in 43 locations throughout North Dakota and central Minnesota.

The class-action lawsuit was originally filed in November of 2019 then revised with an amended complaint filed in January 2020, which withstood a motion to dismiss by Gate City Bank before settlement talks began in August 2020.

The lawsuit contends that Gate City Bank breached its contract with the plaintiffs and violated a “covenant of good faith and fair dealing” as well as North Dakota consumer protection law.

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The two named plaintiffs in the case are Mary Lou Fallis, of Fort Totten, and Kyla Delorme, of St. Michael, both residing on the Spirit Lake Reservation.

Gate City Bank’s agreement with account holders allows it to charge a single $32 fee on a single overdraft when a transaction is not allowed because of insufficient funds, according to the lawsuit. The bank breached its agreement with customers when it charged more than one $32 non-sufficient funds fee on some transactions, the lawsuit alleged.

“This abusive practice is not universal to the financial services industry,” the lawsuit said. “Indeed, major banks like JP Morgan Chase — the largest consumer bank in the country — do not undertake the practice of charging more than one NSF Fee on the same item when reprocessed. Instead, Chase charges one NSF Fee even if an item is resubmitted for payment multiple times.”

In an example cited by the lawsuit, Fallis tried to make an automated payment that was rejected due to insufficient funds in her account, for which she was assessed a fee of $32. Then, the lawsuit alleged, without Fallis’ knowledge and without her request, Gate City Bank reprocessed the transaction 15 days later, assessing a second $32 non-sufficient funds fee.

“Nowhere does GCB disclose that it will treat reprocessing of a check of (automated clearing house) payment as a separate item, subject to additional fees, nor do its customers ever agree to such fees,” the lawsuit said.

Kim Settel, Gate City Bank’s executive vice president of retail banking and lending, said the bank did nothing wrong but wants to settle the case to avoid costs from protracted litigation.

“This type of lawsuit is common in the banking industry, and other banks have also settled,” she said in a statement. “We respectfully disagree with the premise of the lawsuit. We did not do anything wrong, and we were consistent with industry banking practices. We agreed to settle to avoid the burden, expense and disruption that would be associated with further litigation.”

In the settlement agreement, Gate City Bank contends that its assessment of non-sufficient funds and overdraft fees was lawful and “consistent with industry banking practice." The bank said its contract “clearly and adequately” disclosed its assessment of fees.

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But the lawsuit alleged: “Banks like GCB that employ this abusive multiple fee practice know how to plainly and clearly disclose it. Indeed, other banks and credit unions that do engage in this abusive practice disclose it expressly to their account holders — something Defendant here never did.”

Under the settlement agreement, Gate City Bank’s $5.5 million settlement payment will be divided between two classes of plaintiffs, distinguished by the type of fees they paid, one for $4,840,000 and another for $660,000.

As class representatives, Fallis and Delorme each will receive a $5,000 service award. Specific payments for the unspecified number of other plaintiffs in the class-action case were not disclosed in the agreement.

The agreement allows the plaintiffs’ lawyers, led by Kopelowitz Ostrow law firm in Fort Lauderdale, Florida, to collect fees up to one-third of the settlement, or $1.83 million, plus reimbursement for costs.

The expected fee for the settlement administrator is about $100,000.

Gate City Bank
The Gate City Bank building downtown Fargo. David Samson / The Forum

The lawsuit did not present a total of allegedly improperly assessed fees but said they were “crippling” and totaled millions of dollars per year.

“Gate City does not in any way acknowledge, admit to, or concede any of the allegations made in the Amended Complaint, and expressly disclaims and denies any fault or liability or any charges of wrongdoing that have been or could have been asserted in the Amended Complaint,” the settlement agreement said.

District Judge Steve McCullough will preside over a hearing on Sept. 9 to decide whether to approve the settlement. Plaintiffs have until Aug. 10 to opt out of the settlement. The class includes banking customers who paid allegedly improper fees from Nov. 20, 2013, through Nov. 30, 2021.

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The class-action lawsuit pending settlement isn’t the first filed against Gate City Bank. In April 2012, Amber Pieloor of Underwood, North Dakota, was the named plaintiff in a class-action lawsuit filed in U.S. District Court alleging improper assessment of fees and seeking more than $5 million.

U.S. District Judge Daniel Hovland dismissed Pieloor’s lawsuit, which had more than 100 plaintiffs, in July 2013.

Rick Clayburgh, president and chief executive officer of the North Dakota Bankers Association, said l awsuits like the one against Gate City Bank have become common , according to discussions with fellow banking representatives from around the country.

“We’ve been hearing that they’re occurring around the country,” he said. “They’re all kind of the same,” and include provisions in the settlements barring specific comments from the banks.

“There’s kind of a gag on the institution not to comment too specifically,” he said.

Under Gate City Bank’s settlement agreement, the parties agree not to initiate press coverage of the settlement.

“If contacted, the Party may respond generally by stating that the Party is satisfied the Settlement was reached and that it was a fair and reasonable result,” a provision in the settlement said.

Lawyers for Kopelowitz Ostrow, the law firm that led the class action lawsuit against Gate City Bank, did not respond to emails seeking comment.

Clayburgh said he was unaware of any other banks in North Dakota that have been hit with lawsuits alleging inappropriate overdraft fees.

Last year, a report published by the Brookings Institution listed Gate City Bank as one of six banks in the United States with assets of at least $1 billion that got at least half of their net income from overdraft fees.

Gate City Bank got 59% of its net income from overdraft charges in 2020 , according to the analysis from the Brookings Institution, a research and advocacy group.

In an opinion piece about the findings, the report’s author said there has been an “explosion” in overdraft charges that is “making basic banking expensive for people living paycheck to paycheck.”

Executives of Gate City Bank said in response that the bank’s heavy emphasis on consumer banking — and its lack of commercial lending, agricultural lending and trust services that many other banks offer — skews the figures, since so much of its business comes from servicing checking and savings accounts.

Patrick Springer first joined The Forum in 1985. He covers a wide range of subjects including health care, energy and population trends. Email address: pspringer@forumcomm.com
Phone: 701-367-5294
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