Appeals Court Ruling on Overdrafts Leaves Wells Fargo Vulnerable
Horwitz, Jeff, American Banker
Byline: Jeff Horwitz
Wells Fargo (WFC) has won a partial victory in its appeal of a closely watched, $203 million overdraft lawsuit, but both sides of the case are gearing up for another round of fighting over the bank's consumer practices.
A panel of judges in the U.S. Court of Appeals for the 9th Circuit ruled that Wells could not be held liable for manipulating the order in which customers' debit charges were processed to maximize overdraft fees. The Office of the Comptroller of the Currency had sanctioned Wells' practices, the panel found, preempting such a challenge under state law.
But the panel upheld a finding that Wells made "fraudulent or misleading representations" about its practices, giving the original judge in the class action a second chance to force Wells to pay restitution.
So-called "high-to-low posting" allows banks to charge more in fees when customers overdraft their accounts. By reordering customers' daily transactions so that the largest purchases are subtracted from consumer checking balances first, Wells and many other banks increased the number of overdrafts charged to a customer within a single day.
Because federal preemption shielded Wells from second-guessing of its posting order, the appealscourt panel threw out an order from federal district court in northern California that Wells return $203 million in overdraft fees to California customers.
Wells is "pleased with the decision that largely reaffirms Wells Fargo's position and vacates the monetary award against us," Wells Fargo spokesman Ancel Martinez wrote in an email. "We look forward to resolving the remaining issues, and we will continue to serve the financial needs of our customers."
But the appealscourt panel upheld U.S. District Judge William Alsup's determination in the case, Gutierrez v. Wells Fargo, that Wells had misled its customers about its practices, potentially allowing him to hit Wells with a similar fine on the second go around.
"On remand, the district court will be in a position to determine whether, subject to the limitations in this opinion, restitution is justified," the appeals court panel found.
"It's a split decision on the preemption," said Michael Sobol, an attorney for Lieff Cabraser Heimann & Bernstein who represents the plaintiffs. …