A federal judge in California ordered Wells Fargo & Co. to pay customers $203 million and change "unfair and deceptive business practices" that he ruled led customers to pay multiple overdraft fees.
In the decision, U.S. District Judge William Alsup accused Wells Fargo of "profiteering" by changing its policies to process checks, debit card transactions and bill payments from the highest dollar amount to the lowest, rather than in the order the transactions took place. That helped drain customer bank accounts faster and drive up overdraft fees.
Wells Fargo adopted the policies beginning in 2001, and they became widespread across the banking industry. It is unclear how the ruling would apply to the rest of the industry.
The ruling detailed the experiences of two Wells Fargo customers who used their debit cards for multiple small purchases, and were then charged hundreds in overdraft fees because the order the purchases were cleared by the bank depended on the amounts. The judge found the customers, who were part of a class action, were not properly informed of the bank's policies on processing payments and were unaware the bank would allow debit purchases to go through when their accounts were overdrawn.
The judge dismissed Wells Fargo's arguments that customers wanted and benefited from the policies, and detailed evidence he said showed efforts to obscure the practices in statements and other materials. Wells Fargo's online banking system, for example, would display pending purchases in chronological order, "leading customers to believe that the processing would take place in that order."
The decision noted that the Federal Reserve has outlawed some of the practices detailed in the case, most notably debit card overdrafts permitted without customers agreeing to accept overdraft protection.
Alsup ordered Wells Fargo to stop posting transactions in high-to-low order by Nov. 30 and to reverse overdraft fees charged to customers from Nov. 15, 2004, to June 30, 2008, as a result of the policy. A study cited in the decision by a Wells Fargo witness put the restitution at "close to $203 million."
Wells Fargo spokesperson Richele Messick said the bank is disappointed and will appeal the ruling. Messick noted that Wells Fargo changed its policies earlier this year, and customers can no longer incur more than four overdraft charges in one day.