Wells Fargo Fined for Overdraft Practice

Summary:
Wells Fargo was ordered to pay more than $200 million to compensate customers who faced higher overdraft fees. In addition to requiring Wells Fargo to pay $203 million in restitution, the judge also ordered the bank to stop the practice by Nov. 30.

Wells Fargo puts through customers’ checks for larger amounts first because it’s often their more important payments covering a mortgage or auto loan. But if that payment overdraws the account, smaller checks posted afterward would bounce, with each bounced check assessed up to $35 in overdraft fees.

The bank's practice of processing transactions from the largest to the smallest instead of in the order in which they occurred is clearly designed to maximize the number of overdrafts and "squeeze as much as possible" out of customers.

In the early 1990s, bankers attending an industry conference were told it was a very effective way to boost fee income, especially for banks serving large military bases and other communities in which many customers are struggling financially.

The judge has ordered Wells Fargo & Co. to pay more than $200 million to compensate customers who faced higher fees due to the bank’s practice of posting transactions so that checks for the highest amounts clear first, often triggering more bounced checks.

Judge William Alsup, in the class-action ruling in federal court in San Francisco, said the bank’s processing method was designed to generate more fees.
The judge ordered the bank to change its "unfair and deceptive" practices, which in some cases caused customers to be charged 10 $35 overdraft fees for going just a few dollars over the limit.
Our opinion on Wells Fargo’s likelihood of winning on appeal:
In the lawsuit, the bank said customers wanted and benefited from the high-to-low reordering and that its decision was backed by federal law. Wells Fargo doesn’t believe the ruling is in line with the facts of this case. Wells Fargo’s method of processing transactions has been appropriate and consistent with the customers’ interests and the laws and rules of governing regulatory bodies. Wells Fargo may win on the appeal.