Frost Bank, a prominent financial institution, is under legal scrutiny as it faces allegations of improperly charging overdraft fees, marking the second such lawsuit in the past three years.

Customers LaNita Criswell and LaSheena Neal have claimed that the bank's practice of levying a $35 overdraft fee on transactions that did not exceed the available account balance constitutes a breach of contract and violates the Electronic Funds Transfer Act.

As reported by the San Antonio Express-News, this proposed class-action lawsuit includes at least 100 members and seeks $5 million in damages from the billion-dollar lender.

The plaintiffs argue that Frost Bank's method of handling debit card transactions—where funds sufficient to cover the purchase were initially present—involved the bank 'sequestering' funds for payment yet still applying the $35 overdraft fees.

They accuse the bank of misrepresenting its practices in its account contracts, challenging the fairness and transparency of these financial penalties. Frost Bank has responded to these allegations by stating that it had already removed the contested fees last summer, coinciding with the Consumer Financial Protection Bureau (CFPB) publishing a proposed rule to curb similar financial charges, often labeled as 'junk fees.'

Similarly, Frost Bank, which was run by San Antonio resident Theodore Woods, faced a lawsuit in 2021, accusing it of 'unfair and unconscionable collection of overdraft fees.'

The parties involved opted to settle, so the court dismissed the lawsuit in August 2022. Since then, Frost Bank has amended its overdraft policies, notably expanding its $100 overdraft grace period in June 2022.

This policy aims to shield customers from overdraft fees for transactions that overdraw their accounts by up to $100, though the bank maintains that this service is discretionary.

"Frost Bank's method of handling debit card transactions involved 'sequestering' funds for payment, yet still applying the $35 overdraft fees."

The ongoing legal battles and policy changes underscore a growing scrutiny over bank fees and the financial industry's practices.

As consumers and regulatory bodies push for greater transparency and fairness in financial transactions, the outcome of this lawsuit could set a precedent for how banks handle overdraft fees and related charges moving forward.