CLASS ACTION FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER BENCH TRIAL AWARDING $203 MILLION TO WELLS FARGO'S CALIFORNIA CUSTOMERS.
On May 14, 2013 the U.S. District Court for the Northern District of California reinstated a prior order enjoining a national bank from engaging in false or misleading representations relating to certain overdraft practices and requiring the bank to pay approximately $203 million
A California judge ordered Wells Fargo to pay California customers $203 after finding that the bank had deliberately manipulated the way it processed transactions in a way that turned one overdraft fee into as many as 10, at $35 a pop.
Internal bank memos, the judge said, showed that after 2001, along with many other banks, Wells Fargo decided to change the way it processed account transactions from low to high to high to low. In addition, ACH and check transactions were commingled with debit, whereas before they had been separate.
In his 90-page ruling, the judge wrote:
Internal bank memos and emails leave no doubt that, overdraft revenue being a big profit center, the bank’s dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible out of what it called its “ODRI customers” (overdraft/returned item) and particularly out of the four percent of ODRI customers it recognized supplied a whopping 40 percent of its total overdraft and returned-item revenue.
…In the February 2002 BSE memo, the bank explained that the December 2001 commingling change was designed “to more-closely mirror true High-to-Low sort order” (TX 36). This is significant because Wells Fargo knew — and its own expert witness, Professor Christopher James, confirmed at trial — that high-to-low posting
would “mechanically . . . lead to more overdrafts” than other posting order (Tr. 613, 1863-64). It is a mathematical certainty.
Weighing all of the evidence presented at trial, this order finds that gouging and profiteering were Wells Fargo’s true motivations behind the high-to-low switch and the allied practices that soon followed. High-to-low posting was adopted exclusively to generate more overdraft fees and fee revenue at the expense of depositors. The two closely allied practices that followed were similarly motivated by a singular desire to boost overdraft fee revenue using the bank’s high-to-low bookkeeping device. While these changes occurred prior to the class period, they set the stage for the profiteering that ran rampant during the class period and continues even now.
It’s been nearly three years since a U.S. District Court first ordered Wells Fargo to pay out $203 milllion in refunds to settle a class-action suit involving the bank’s overdraft policies. Since then, the bank got a U.S. Circuit Court of Appeals to set aside that mountain of cash, saying California law can not override federal banking laws. However, the Appeals panel upheld the lower court’s decision that Wells Fargo had used “misleading propaganda” to deceive customers into believing their transactions were being processed in the order in which they were made. It sent the case back to the District Court for the judge to decide on how much should be paid out for that bad behavior. Now the original District Court judge is once again ordering the bank to fork over the $203 million.
According to a newly released white paper from the National Consumer Law Center, banks brought in $29.5 billion in overdraft fees in 2011 alone (a recent study showed that number increased to $32 billion in 2012). Given that the median fee is now around $35, while the actual cost to the bank for processing the overdraft is anywhere from a few cents to a few dollars, a large portion of those billions is profit.
The NCLC also found that the median debit card overdraft is only $20, while the median amount for all overdrawn transactions is $36. Thus, in many cases, the fee is larger than the amount being overdrafted.
In recent years, a some of the larger banks have made no secret of the fact that the average checking account-holder is not a source of profits, and have tried to institute things like monthly fees for debit cards, a number of which have resulted in public backlash.
Meanwhile, the NCLC says banks have realized the potential for profit in customers with accounts on the brink of overdraft, instituting systems that make it easier for these consumers to cross that threshold.
“The CFPB now has authority to issue regulations to interpret the Credit CARD Act,” explains the NCLC. “The CFPB could apply the reasonable and proportional standard to overdrafts accessed by debit cards by treating them as ‘credit cards.’”
In the broader picture, the NCLC holds that the CFPB could use its consumer protection authority to rein in overdraft fees, regardless of whether or not a debit card is involved.