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Judge blasts Wells Fargo for overdraft fees

Wells Fargo is ordered to return $200 million in overdraft fees a federal judge says were obtained through deceptive manipulation.

By Karen Datko Aug 12, 2010 12:21PM

This post comes from Jon Hood at partner site ConsumerAffairs.com.

 

A federal judge has ordered Wells Fargo to shell out more than $200 million in restitution to California customers for "massive" overdraft fees.

In a spirited 90-page ruling, U.S. District Court Judge William Alsup wrote that "Wells Fargo has devised a bookkeeping device to turn what would ordinarily be one overdraft into as many as 10 overdrafts, thereby dramatically multiplying the number of fees the bank can extract from a single mistake."

 

According to the judge, Wells Fargo created a "deceptive" system whereby it processed consumers' transactions from largest to smallest, meaning that the most expensive transaction would be processed first. Under this system -- as opposed to one in which transactions are processed in chronological order -- consumers are more likely to overdraw their account multiple times, which means more overdraft fees for Wells Fargo.

 

"The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure," Alsup wrote.

 

Consumer preference?

Wells Fargo countered that consumers prefer having transactions processed highest to lowest, since it means that their biggest -- and presumably most important -- bills get paid first. Alsup didn't buy that argument.

 

"The trial record here demonstrates that depositors do not prefer high-to-low posting, that there is no net benefit, and that the bank's actual motive in imposing a high-to-low regime was to multiply the number of overdrafts and thereby increase its overdraft revenue," he wrote.

 

He added, "The bank's dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible out of" its customers.

 

Alsup ordered Wells Fargo to stop those practices by Nov. 30, and to refund any overdraft fees charged to California customers between Nov. 15, 2004, and June 30, 2008, as a result of those policies. Those fees total more than $200 million.

 

The bank plans to appeal the decision.

 

"We're disappointed with the judge's ruling," company spokeswoman Richele Messick told The New York Times. "We don't believe the ruling is in line with the facts of the case."

 

The Times also said:

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.
Whatever the outcome on appeal, Wells Fargo is unlikely to be hurting for cash anytime soon. The bank collected a staggering $1.8 billion in overdraft fees from California consumers between 2005 and 2007 alone.

 

More from ConsumerAffairs.com and MSN Money:

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