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Wells Fargo Loses Ruling on Overdraft Fees

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  • Wells Fargo Loses Ruling on Overdraft Fees

    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.
    Last edited by EXC; 13th August 2010, 12:26:PM.

  • #2
    Re: Wells Fargo Loses Ruling on Overdraft Fees

    Post #30 from more than three years ago. Devils Advocate- why should i pay for your mistakes - Page 2 - Legal Beagles Consumer Forum

    It is a shame Judge Alsup cannot educate those over here, because it's been going on for a long time.

    Comment


    • #3
      Re: Wells Fargo Loses Ruling on Overdraft Fees

      Thanks for that information.

      That is £203 m in California alone, from one bank alone- Wells Fargo. The article refers to Florida as the next.

      Lets see what happens in other states, other banks.

      The financial and liquidity implications for USA banks could be massive, I wonder if this will end with political input to ease the pressure once the corporate banks start lobbying.

      This is good- "new federal laws requiring banks to obtain customers’ permission before allowing many overdrafts to go through".

      Comment


      • #4
        Re: Wells Fargo Loses Ruling on Overdraft Fees

        Originally posted by Cetelco View Post
        It is a shame Judge Alsup cannot educate those over here, because it's been going on for a long time.
        Indeed.

        The order of payments issue was discussed during the first instance test case hearing. Apparently UK banks take the view that there is no promise on the part of the bank as to the order in which payments are made, and that an ''individual'' at the bank will form a ''judgment'' as to which payment would be ''more important'' to the customer to make first.

        So we can rest assured.


        MR MILLIGAN:
        The bank does not make any promise as to the order of processing, and, therefore, there is no term to express in plain or any other language.

        MR JUSTICE ANDREW SMITH:
        What does that mean? That is if you receive them on the same day?

        MR MILLIGAN: Yes.

        MR JUSTICE ANDREW SMITH: One would expect the bank in a sense to process what was presented on Monday before what was presented on Tuesday.

        MR MILLIGAN: Yes, this is the case of several items cropping up for process on the same day, and indeed it is illustrated by one of the examples your Lordship gave yesterday of ten cheques for ú10 being presented on the same day as well as one cheque for ú100 and there being a credit balance of only ú100 on the account.

        MR JUSTICE ANDREW SMITH: So when you say that no promise as to order of processing is made, you mean no promise of order of processing items presented on the same day.

        MR MILLIGAN: Yes, yes. And that is actually spelt out in the bottom of the first page.

        MR JUSTICE ANDREW SMITH:
        Yes, I see. Thank you.

        MR MILLIGAN: So far as item 11, the first part, is
        concerned....

        MR JUSTICE ANDREW SMITH:
        Forgive me -- your financial circumstances commitment doesn't bear upon that, you say?

        MR MILLIGAN:
        No, not on that. What in fact happens, although this is irrelevant to determining whether or not the term is fair or unfair or in plain and intelligible language, is that the bank forms a judgment about whether, for example, the cheque for ú100 appears to be in favour of the mortgagee, and thus it is more important to pay than ú10 to the bookie and ú10 to the pub or whatever it is.

        MR JUSTICE ANDREW SMITH:
        That is not financial circumstances.

        MR MILLIGAN: No.

        MR JUSTICE ANDREW SMITH:
        That is closer to Lloyds personal circumstances.

        MR MILLIGAN:
        Yes, but that is in fact what the bank does, but it doesn't have an obligation to do it in that way.

        MR JUSTICE ANDREW SMITH:
        It, so to speak, takes them in a random order and then, when it runs out of money, it then considers financial circumstances.

        MR MILLIGAN:
        No, it looks at all of the items to be cleared on a single banking day, because the clearance occurs at the end of the banking day, and then forms a judgment, and this is an individual who is forming a judgment with the aid of computerised algorithms, as to whether or not
        it is more important for the customer, absent specific instructions from the customer, to pay the item in favour of the landlord or the mortgagee as opposed to what appear to be less significant items. But the bank doesn't have an obligation to do that, and therefore there is nothing to express.

        MR JUSTICE ANDREW SMITH:
        And the reference in your documents to "financial circumstances" doesn't bear upon that?

        MR MILLIGAN:
        I would suggest not, no. The financial circumstances goes to the question of giving credit, i.e. that is the stage beyond. Suppose that the bank has decided, taking your example, to pay the cheque of ú100 because it is in favour of the mortgagee, thus leaving the ten cheques for ú10 potentially unpaid. Then the financial circumstances come into play in assessing whether or not an unauthorised overdraft
        should be granted and, if so, whether it is going to cover just one of those ú10 cheques or all of them or something in between.

        Comment


        • #5
          Re: Wells Fargo Loses Ruling on Overdraft Fees

          Excellent news - it will filter across. Funny how it wasn't mentioned by Mr Milligan that each of those £10 cheques being either paid or unpaid would cost the customer multiples of £35. Thus the financial circumstances consideration would make it better for the customer to pay the £10 cheques and decide on unauthorised OD or not for the £100 cheque incurring only one charge.

          Just for interest The previous days mention of the one cheque v ten cheques example is on Day 3 Page 96 Legal Beagles Consumer Forum


          Regarding your linked post Cet, has anything been clarified on debits processed before/after credits ?

          Wells judgment is http://graphics8.nytimes.com/package...0811-wells.pdf which is fascinating reading and I'm sure many BArclays (yes picking on them as I have seen a lot of complaints about similar actions with them) customers sympathise with the scenario.

          37. The transactions were posted by Wells Fargo in the following order: First, all
          credits were posted to Ms. Gutierrez’s checking account. This is why the returned AutoZone
          purchase was the first of the twelve items to post. Second, transactions representing cash
          withdrawals (or their equivalent) were posted from highest-to-lowest dollar amount. The online
          transfer of funds, ATM withdrawal, and associated two-dollar transaction fee were part of this
          “priority posting” group (as called by the bank). Third, and most significantly, debit-card
          transactions, checks, and ACH transactions were commingled together and posted from
          highest-to-lowest dollar amount. The parties agree that this is how Wells Fargo posted
          transactions during the class period (Dkt. No. 448).

          38. The adverse impact of Wells Fargo’s high-to-low bookkeeping switch is clearly
          shown by these transactions. If the last eight transactions had been posted by Wells Fargo from
          lowest-to-highest dollar amount, only one of the debit-card purchases — the $74.39 purchase at
          Albertsons supermarket — would have been an overdraft. Thus, only one overdraft fee ($22), as
          opposed to four overdraft fees ($88), would have been assessed.
          39. The adverse impact of commingling is also well illustrated. Assuming that
          debit-card transactions were posted in high-to-low order, if Wells Fargo had simply posted the
          $65 check after all of the debit-card transactions — as was its practice prior to commingling —
          only one overdraft fee ($22) as opposed to four overdraft fees ($88) would have been assessed.4
          This clearly illustrates the adverse impact that the commingling decision had on customers like
          Ms. Gutierrez, as well as the integral role that commingling had in enhancing the bank’s
          high-to-low bookkeeping play.

          40. Finally, if Wells Fargo had posted Ms. Gutierrez’s debit-card transactions in
          chronological order (or as close to chronological order as possible), the $74.39 purchase at
          Albertsons supermarket — which was made on October 7 — would have been posted last. Under
          this scenario, only one overdraft fee ($22), as opposed to four overdraft fees ($88), would have
          been assessed.

          (nb: have moved this up to international issues and left a permanent redirect - just being pedantic about filing these things)
          Last edited by Amethyst; 13th August 2010, 14:00:PM.
          #staysafestayhome

          Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

          Received a Court Claim? Read >>>>> First Steps

          Comment


          • #6
            Re: Wells Fargo Loses Ruling on Overdraft Fees

            Could send copies to FSA and Government????????

            Comment


            • #7
              Re: Wells Fargo Loses Ruling on Overdraft Fees

              Originally posted by Amethyst View Post

              (nb: have moved this up to international issues and left a permanent redirect - just being pedantic about filing these things)
              Do I sense some commingling going on here?

              According to a US bank charges campaign site, American banks raked in $40b in overdraft charges last year. Interesting site Bank Overdraft Fee Class Action Lawsuits - Fighting Abusive Bank Overdraft Fees - Bank-Overdraft.com

              Comment


              • #8
                Re: Wells Fargo Loses Ruling on Overdraft Fees

                Originally posted by Amethyst View Post


                Regarding your linked post Cet, has anything been clarified on debits processed before/after credits ?
                Not that I am aware of, or have been able to find. It is still massively financially advantageous for the banks to pick and choose the order in which they process credits and debits and this is why they have been determined not to attempt to clarify it.

                Comment


                • #9
                  Re: Wells Fargo Loses Ruling on Overdraft Fees

                  Originally posted by EXC View Post
                  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.
                  This so resembles the Providian CCC finding of a few years back. The officers of that company got threatened with jail by the district attorney

                  Comment


                  • #10
                    Re: Wells Fargo Loses Ruling on Overdraft Fees

                    Big banks resisting changes to overdraft fee triggers - latimes.com

                    Julia Tunis Bernard, a bank spokeswoman, said the practice in question is "consistent with customers' interests" and that Wells will appeal the judge's decision.

                    Representatives of Bank of America Corp., Citibank and Chase told me they have no plans to change their ways either.
                    #staysafestayhome

                    Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

                    Received a Court Claim? Read >>>>> First Steps

                    Comment

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