Plaintiffs' attorneys have sued scores of banks over the manipulation of overdraft fees. But they've never enjoyed a more complete victory than in Gutierrez v. Wells Fargo.
A district court judge awarded plaintiffs "full damages" of $203 million in 2010 for the case, which charged that the San Francisco bank quietly reordered debit transactions so that its customers racked up more overdraft fees (see story). On May 15, Wells took its shot at overturning that judgment, appearing before appellate judges of the 9th U.S. Circuit Court of Appeals in San Francisco to argue that the earlier verdict was unjustified.
"The judgment should be reversed for two main reasons. Plaintiffs' claims are preempted by federal banking law, and second, plaintiffs' claims fail as a matter of state law," Wells Fargo attorney Robert Long told the three-judge panel. He further argued that Wells' contract disclosures precluded the possibility of defrauding its customers.
The appeal drew briefs from the American Bankers Association and the Center for Responsible Lending, in a reflection of its significance as a foundational case for subsequent overdraft litigation. The 2010 decision marked the first time plaintiffs' attorneys drew blood on overdraft fees, as U.S. District Judge William Alsup of California's Northern District framed Wells' behavior in flagrant terms and dismissed bank officials' testimony about Wells' good intentions as "not credible."
"Gouging and profiteering were Wells Fargo's true motivations," Alsup wrote in a blistering 2010 opinion.
While Wells protested some of Alsup's harsher wording in its briefs, the bank focused its May 15 arguments on preemption and the wording of its disclosures. The Office of the Comptroller of the Currency's past endorsement of high-to-low posting of checking account charges should preclude lawsuits brought under California law, Long argued.
But members of the three-judge panel questioned whether preemption could get the bank off the hook, and it repeatedly raised doubts about whether Wells Fargo adequately disclosed its practices to customers. Federal regulators had warned banks about this sort of issue, Judge Margaret McKeown said, because "unfair competition laws might come back to bite you."
Additional reporting contributed by Steven Horwitz.
A longer version of this story is on AmericanBanker.com.
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