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Wells Fargo Loses Ruling on Overdraft Fees
Wells Fargo Loses Ruling on Overdraft Fees - NYTimes.com
A federal judge on Tuesday ordered Wells Fargo to pay California customers $203 million in restitution for claims that it had manipulated transactions to maximize the overdraft fees it charged.
Instead of processing transactions in the order in which they were received, Wells Fargo put through the largest to smallest, a judge in San Francisco found. In a stinging 90-page opinion, United States District Judge William Alsup wrote that the practice was unfair and deceptive.
“The bank’s dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible” out of customers who spent more than they had in their accounts, the judge wrote. The ruling comes after a two-week trial in the spring heard by the judge.
Wells Fargo, which collected nearly $1.8 billion in overdraft fees in California alone from 2005 to 2007, said it would appeal.
“We’re disappointed with the judge’s ruling,” said Richele Messick, a bank spokeswoman. “We don’t believe the ruling is in line with the facts of the case.”
Ms. Messick said Wells Fargo’s method of processing transactions was “appropriate and consistent with customers’ interest and the laws and rules of governing regulatory authorities.”
The judge’s ruling could portend problems for other banks that are defendants in similar cases. Other federal lawsuits regarding overdraft fees have been consolidated into one class-action suit in Florida, which also claim that Wells Fargo and other banks manipulated transactions to maximize overdraft fees.
Ruben Honik, one of the lawyers representing plaintiffs in the Florida case, said the judge’s ruling would provide a “road map.”
“It was a litmus test for our theory and the whole approach we took,” Mr. Honik said.
Overdraft fees have become an important source of revenue for banks and credit unions in the last decade, particularly as debit cards have risen in popularity.
But now, banks stand to lose billions because of new federal laws requiring banks to obtain customers’ permission before allowing many overdrafts to go through. Wells Fargo, for instance, reported that the new regulations would cost it $275 million in the fourth quarter alone, Ms. Messick said. The rules, however, do not prohibit banks from processing transactions from largest to smallest.
Banks and credit unions had previously bounced checks and charged customers a fee, but many realized that they could make more money if they allowed consumers to overdraw their accounts when making debit purchases or when using an A.T.M., paper checks or regularly scheduled electronic payments.
Banks charged a fee for this service of as much as $39 per overdraft, and customers began complaining of being charged for exceeding their balance by only a few dollars. In some instances, consumers complained that they had been charged hundreds of dollars of overdraft fees in a single day.
Such problems were compounded by the way that some banks, like Wells Fargo, processed transactions. According to the judge’s ruling, Wells Fargo changed the way that it processed transactions in 2001. When a bank processes the big transactions first, a consumer’s balance goes below zero faster, leading to separate fees for each overdrawn transaction.
Wells Fargo and other banks maintain that customers like having their big and important purchases like rent and car payments paid first.
But Judge Alsup ripped apart that argument, saying that a small item like a check to a local government might be more important than a large item. “The supposed net benefit of high-to-low resequencing is utterly speculative,” he wrote. “Its bone-crushing multiplication of additional overdraft penalties, however, is categorically assured.”
The judge also accused Wells Fargo of going “to lengths to hide these practices while promulgating a facade of phony disclosure.” For instance, he said that customers had learned about the change in how Wells Fargo processed transactions only after they complained about it.
Wells Fargo Loses Ruling on Overdraft Fees - NYTimes.com
A federal judge on Tuesday ordered Wells Fargo to pay California customers $203 million in restitution for claims that it had manipulated transactions to maximize the overdraft fees it charged.
Instead of processing transactions in the order in which they were received, Wells Fargo put through the largest to smallest, a judge in San Francisco found. In a stinging 90-page opinion, United States District Judge William Alsup wrote that the practice was unfair and deceptive.
“The bank’s dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible” out of customers who spent more than they had in their accounts, the judge wrote. The ruling comes after a two-week trial in the spring heard by the judge.
Wells Fargo, which collected nearly $1.8 billion in overdraft fees in California alone from 2005 to 2007, said it would appeal.
“We’re disappointed with the judge’s ruling,” said Richele Messick, a bank spokeswoman. “We don’t believe the ruling is in line with the facts of the case.”
Ms. Messick said Wells Fargo’s method of processing transactions was “appropriate and consistent with customers’ interest and the laws and rules of governing regulatory authorities.”
The judge’s ruling could portend problems for other banks that are defendants in similar cases. Other federal lawsuits regarding overdraft fees have been consolidated into one class-action suit in Florida, which also claim that Wells Fargo and other banks manipulated transactions to maximize overdraft fees.
Ruben Honik, one of the lawyers representing plaintiffs in the Florida case, said the judge’s ruling would provide a “road map.”
“It was a litmus test for our theory and the whole approach we took,” Mr. Honik said.
Overdraft fees have become an important source of revenue for banks and credit unions in the last decade, particularly as debit cards have risen in popularity.
But now, banks stand to lose billions because of new federal laws requiring banks to obtain customers’ permission before allowing many overdrafts to go through. Wells Fargo, for instance, reported that the new regulations would cost it $275 million in the fourth quarter alone, Ms. Messick said. The rules, however, do not prohibit banks from processing transactions from largest to smallest.
Banks and credit unions had previously bounced checks and charged customers a fee, but many realized that they could make more money if they allowed consumers to overdraw their accounts when making debit purchases or when using an A.T.M., paper checks or regularly scheduled electronic payments.
Banks charged a fee for this service of as much as $39 per overdraft, and customers began complaining of being charged for exceeding their balance by only a few dollars. In some instances, consumers complained that they had been charged hundreds of dollars of overdraft fees in a single day.
Such problems were compounded by the way that some banks, like Wells Fargo, processed transactions. According to the judge’s ruling, Wells Fargo changed the way that it processed transactions in 2001. When a bank processes the big transactions first, a consumer’s balance goes below zero faster, leading to separate fees for each overdrawn transaction.
Wells Fargo and other banks maintain that customers like having their big and important purchases like rent and car payments paid first.
But Judge Alsup ripped apart that argument, saying that a small item like a check to a local government might be more important than a large item. “The supposed net benefit of high-to-low resequencing is utterly speculative,” he wrote. “Its bone-crushing multiplication of additional overdraft penalties, however, is categorically assured.”
The judge also accused Wells Fargo of going “to lengths to hide these practices while promulgating a facade of phony disclosure.” For instance, he said that customers had learned about the change in how Wells Fargo processed transactions only after they complained about it.
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