Wells Fargo Must Pay $203M, Judge Rules, Due to 'Draconian' Debit-Card Overdraft Policy
A federal judge in California has ruled that Wells Fargo must repay $203 million in excessive debit-card overdraft fees to customers who were charged, without adequate disclosure, in a manner that maximized the number of $35 fees they were hit with for exceeding the available balance in their accounts.
“The essence of this case is that Wells Fargo has devised a bookkeeping device to turn what would ordinarily be one overdraft into as many as ten overdrafts, thereby dramatically multiplying the number of fees the bank can extract from a single mistake,” writes U.S. District Judge William Alsup. The Portland Business Journal provides a link to the 90-page order (PDF) he issued yesterday in the San Francisco case.
“The draconian impact of this bookkeeping device has then been exacerbated through closely allied practices specifically ‘engineered’—as the bank put it—to multiply the adverse impact of this bookkeeping device,” the judge continues. “These neat tricks generated colossal sums per year in additional overdraft fees, just as the internal bank memos had predicted. The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure.”
Handling the overdrafts in this manner constituted a deceptive practice under California state law, the judge determined after a bench trial.
Lieff Cabraser Heimann & Bernstein represented the plaintiffs in the class action. The basic mechanism employed by Wells Fargo to up the overdraft ante reportedly was to deduct funds from the day’s biggest transactions first, rather than processing debits in the order in which they were received by the bank.
A spokeswoman for Wells Fargo, which collected $1.8 billion in overdraft fees just in California between 2005 and 2007 says it will appeal, the DealBook blog of the New York Times reports.
Additional coverage:
Money Blog (Consumer Reports): “Don’t opt in! Ignore your bank’s plea to stay in its overdraft program”
Oregonian: “Wells Fargo’s overdraft fee practice exposed, and it’s not pretty”
