Magazine article American Banker

Court Ruling on Trust Fee Could Invite Wave of Suits

Magazine article American Banker

Court Ruling on Trust Fee Could Invite Wave of Suits

Article excerpt

Banks across the country may have to fight lawsuits and cut their trust fees in the wake of a federal court decision in Philadelphia.

Judge Marvin Katz of the U.S. District Court for the eastern district of Pennsylvania ruled last week that Mellon Bank of Pittsburgh owed $56 million plus 11 years' interest for overcharging trust customers.

The disputed charge was the "sweep fee," imposed when personal trust income was moved into money market accounts.

Appeal Planned

Officials of Mellon Bank Corp. denounced the ruling and said and appeal was to be filed on Monday.

In a sharply worded opinion, Judge Katz said Mellon's sweep service generated an operating margin of 7,000% in 1991 alone. The bank took in $7 million but spent less than $100,000 on the computer systems used to execute the transactions, he said.

Lawyers for the victorious trust clients said the damages could exceed $100 million once interest is computed back to 1981.

But Mellon officials said that estimate is exaggerated. They added that even if they lose on appeal, they expect Judge Katz's fine will be viewed as excessive and reduced to $10 million or lower.

Prospect for More Suits

Whatever the outcome, the decision has broad implications, because most of the 3,000 banks that exercise trust powers routinely sweep customers' dividends and interest into short-term income-producing accounts, and charge fees equal to or greater than Mellon's.

Trust industry experts said most banks will have to consider dropping or drastically reducing their sweep fees if they cannot justify them.

Lawyers from Greenfield & Chimicles, who argued the class-action case, said more such suits are inevitable.

Fee Termed |Egregious'

"There are certainly banks out there whose practices are going to be subject to scrutiny," said C. Oliver Burt 3d, a partner with the Haverford, Pa. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.