Academic journal article ABA Banking Journal

Overreaction or Onslaught? Gutierrez Challenges High-to-Low Debit Posting

Academic journal article ABA Banking Journal

Overreaction or Onslaught? Gutierrez Challenges High-to-Low Debit Posting

Article excerpt

The Federal district court in San Francisco dropped a bombshell on the banking industry in August with an opinion that could dramatically affect debit cards and automatic overdraft protection products in California. The case, Gutierrez v. Wells Fargo Bank, takes issue with what the court deemed to be a "draconian" overdraft protection policy put in place by Wells Fargo Bank in 2001. While the decision is currently on appeal to the Ninth Circuit, in the short term the district court's opinion has raised many questions about existing overdraft protection programs.

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The opinion runs a full 90 pages, and it is a harrowing read. Peppered with internal bank documents and customer horror stories, the main target of the court's ire was the UCC-authorized practice of posting debit card transactions in a "high-to-low" order based on dollar amount. The court ruled that Wells Fargo's reliance upon a high-to-low posting order, coupled with what the court viewed as inadequate disclosure to customers, created a product that (in the opinion of the court) was intentionally designed to create more customer overdrafts. This, the court ruled, violated the unfair and deceptive acts and practices (UDAP) provisions of the California Business and Professions Code.

Whether the court's assessment of Wells Fargo's overdraft policy survives an appeal remains to be seen. In the interim, the decision raises many questions about existing overdraft protection programs. Foremost is whether the fallout from Gutierrez will make high-to-low posting a UDAP issue elsewhere. The answer is that, without question, both the courts and the regulators are taking a closer look at this issue, which means that you should too. …

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