Sad news for anyone who has ever felt the sting of an overdraft fee from the nation's largest bank: a federal appeals court in San Francisco declared yesterday that Wells Fargo Bank does not, in fact, owe California debit card holders some $203 million in restitution for its shady overdraft practices.
The class action lawsuit, which has been going on since 2007, alleged that Wells Fargo was using a shady method of processing debit purchases to a customer's checking account. Between 2001 and 2010, Bay City News reports, the bank would process the most expensive charges made in a day first before working through the lower charges. The end result is your checking account gets depleted faster and you're hit with a $35 fee for almost every charge.
To wit: if that expensive brunch you treated yourself to one Sunday morning was a little too much for your current checking account balance, you'd be hit with a painful $35 overdraft fee for that transaction. When you sobered up later, you might find out you were also hit with an overdraft charge for the $4 coffee you bought on your way to the restaurant and the $3 you spent an Walgreens on a travel size thing of Advil.
The practice was deemed misleading because the bank had implied that debit purchases were processed immediately and in chronological order. If an account didn't contain the necessary funds, customers were told, then the purchase wouldn't be approved in the first place.
At $35 a pop, Wells Fargo made $1.4 billion in overdraft fees between 2005 and 2007 alone. In 2010 a judge put a stop to the practice, calling it a "trap" that the bank exploited "with a vengeance, racking up hundreds of millions off the backs of the working poor, students and others without the luxury of ample bank balances."
At the time, the bank was ordered to repay $203 million in restitution, but in yesterday's decision a three-judge panel ruled that the federal law permitted the high-to-low processing procedure and overturned the monetary charge against Wells Fargo. The 9th Circuit Court did, however, agree with the earlier ruling that the bank had been misleading customers.
Since 2010, the bank has been processing debit card transactions in chronological order or from lowest to highest. Legally, the bank could return to the shady high-to-low processing practice (which would be disappointing), but according to a spokesperson for the bank, which is worth some $1.4 trillion, they have no intention to do so.
