SAN FRANCISCO (CN) – A federal judge ordered Wells Fargo to pay customers more than $200 million, after a two-week bench trial in which the bank was accused of manipulating debit-card overdraft charges to increase revenue from overdraft fees. The class claimed – and the judge agreed – that Wells Fargo posted transactions with highest dollar amounts first, rather than in the order the purchases were made, to turn one legitimate overdraft fee into as many as 10.
Banks around the country have been accused of the same practice, in dozens of class actions. This claim against Wells Fargo was filed in November 2007 by three customers on behalf of a class of thousands.
The class also alleged that Wells Fargo did not disclose that it was assessing overdraft fees, and that they discovered the fees well after Wells Fargo posted them.
U.S. District Judge William Alsup found that Wells Fargo raked in “massive” profits from the overdrafts: “In California alone, Wells Fargo assessed over $1.4 billion in overdraft penalties between 2005 and 2007.”
Alsup wrote: “Overdraft fees are the second-largest source of revenue for Wells Fargo’s consumer deposits group, the division of the bank dedicated to providing customers with checking accounts, savings accounts, and debit cards. The revenue generated from these fees has been massive. … Only spread income – money the bank generated using deposited funds – produced more revenue.”
Alsup found that while most customers know they must pay fees for overdrafts, “They do not, however, reasonably expect that they will have to pay up to ten overdrafts when only one would be ordinarily incurred.”
Alsup wrote that the fees were “so pernicious” that they should only be allowed if customers reasonably expected to pay them.
“Here the proof is the opposite,” Alsup wrote. “The bank went to great lengths to bury the words deep in a lengthy fine-print document and the words selected were too vague to warn depositors, as even the bank’s own expert conceded.”
During trial, Wells Fargo’s expert testified that the length and complexity of Wells Fargo’s disclosure documents to customers about posting order made it “‘completely unrealistic to assume that … many customers would actually read those lengthy documents.'”
Citing an expert’s study of 43 months of transactions, Alsup estimated the amount of restitution as $203 million. The judge pointed out that the bank based its own analysis “upon a mere ten days worth of customer data (as compared to the 43-months of data analyzed by Expert Olsen). This strips the bank’s arguments of all weight and credibility.” (Parentheses in ruling.)
In addition to restitution for class members, Alsup ordered Wells Fargo to stop posting the highest debits first by Nov. 30, and ordered its counsel to “meet and confer and recommend a detailed plan of distribution and notice, including a plan to track down class members for whom the available contact information is inadequate, such plan to include use of the National Change of Address Registry and published notice.”