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Wells Fargo Must Refund Overdraft Fees to Customers; Other Banks May Be Next

Wells Fargo (WFC) has been sued for processing checking-account transactions from largest to smallest rather than in the order received, which is guaranteed to make the most charges bounce and thus enable the bank to slap customers with the most overdraft fees possible. In a separate lawsuit, many other banks have also been brought to court over this issue. The Wells Fargo case ended yesterday (until the bank's planned appeal is filed) with the San Francisco judge ordering the bank to make restitution -- some $203 million -- to the California customers it charged this way.

Despite internal bank documents cited by the judge that showed San Francisco-based Wells Fargo following a deliberate business strategy to maximize overdraft revenue by processing transactions this way, the bank alleged the practice was good for consumers. The bank claimed -- with a straight face -- that bouncing as many transactions as possible was done with customers' interests in mind because processing the biggest charge first meant that charge, a mortgage payment perhaps, had the best chance of going through.

Who could take such an argument seriously? Not the judge, who called the benefit of the processing policy "utterly speculative.... Its bone-crushing multiplication of additional overdraft penalties, however, is categorically assured."

The judge wasn't fooled, but the bank's regulator was, notes consumer protection and advocacy group U.S. PIRG's Ed Mierzwinski. The Office of the Comptroller of the Currency specifically authorized banks to process transactions this way. The "Get Out of Jail Free" letter the OCC issued, as Mierzwinski calls it, came in 2002 after the lawsuits challenging the practice were filed.

Actually, the letter cites other rationales in addition to the "our customers want it" one, without attempting to resolve the logical contradictions they posed. For example, the banks claimed they needed the additional revenue from processing transactions this way -- but also said doing it would deter customers from making overdrafts, resulting in reduced losses from overdrafts and reduced overdraft fees. So which is? Increased or decreased revenue from fees? I'll bet you know.

The $203 million restitution represents only what Wells owes its California customers. There's potentially a bigger bill from a separate suit in which Wells' clients in other states have accused the bank of the same practices, reports the San Francisco Chronicle. That case, consolidated in federal court in Florida, includes similar claims against 30 other banks, including Bank of America (BAC), Citibank (C), Chase (JPM), Union Bank and U.S. Bank. Wells Fargo earned more than $1.4 billion in overdraft fees in California alone from 2005 to 2007, according to court documents.

Because the California decision is based on state law, it's not particularly persuasive legally on other pending cases. However, it's still a great win for plaintiffs and may suggest how judges are likely to view the basic facts.

And in the Business of Law

Brinks Hofer just laid off 18 employees: Seven attorneys, one patent agent and 10 staff. The layoffs were mostly from the Chicago office, notes Above the Law.

Attorney Kenneth Engerrand apparently coached a witness by tapping her foot under the table during her deposition. An astute paralegal snapped a photo of his foot in action, and now the paralegal's firm is seeking sanctions against Mr. Engerrand. The photo and motions are at Above the Law.

Was your Florida home foreclosed on, or is it in the foreclosure process? If so, was/is the bank represented by the law offices of Marshall C. Watson in Fort Lauderdale, Shapiro & Fishman, or David J. Stern's firm in Plantation? If so, you may be in luck: Florida Attorney General Bill McCollum is investigating those firms for possibly creating fake documents to enable thousands foreclosures, reports ABA Journal. Fake documents should invalidate whatever has happened to your property so far.

The ABA Journal also has another story of a lawyer behaving horribly: Lynn McNeese Swank of Georgia forged a judge's signature four times, on four orders terminating parental rights, so kids could be adopted. Found out, she lied under oath, accusing her ex-husband of doing it, but he had an alibi.

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The judge is right. I have Wachovia which is now a Wells Fargo company. But when it was only Wachovia they did the exact same thing to me; they manipulated my account to steal the most overdrafts. I had two payments drafted. No overdraft until the next day. Thats when Wachovia moved the order of payment around for one overdraft and I wound up with four by the time they finished. Yes, the manipulate. They do cheat customers. I did get two reversed but it took a lot of arguing. They never admited what they did improperly but when I threated to go to he banking commission here in Florida they fixed two overdrafts which never should have been in the first place.

August 13 2010 at 12:52 PM Report abuse rate up rate down Reply
Hi Linette!

How do I become a part of his suit! Wells screwed me over for about 1500.00 last year, and closed my account for the exact reasons!
Please advise.

August 13 2010 at 12:26 PM Report abuse rate up rate down Reply

This ruling and the replies posted here show just how deeply our entitlement mentality goes. Who cares if Wells processed checks largest to smallest to maximize fees (that's the industry standard across the country)-they still processed ALL deposits first. It's YOUR responsibility to KNOW how much money is in your account and not overspend! If the bank covers your check instead of sending it back (which adds more fees from other banks) YOU SHOULD BE GREATFUL. Grow Up.

August 13 2010 at 12:19 PM Report abuse rate up rate down Reply

They also post debits BEFORE credits, even if the credit (ie deposit) is posted on the same day as the debit, even the day before!

I cant believe they didnt hit them on this as well.

We switched to Chase because of this. Chase laughed when I asked them if they do this, acknowledging such a practice was obviously ridiculous.

August 13 2010 at 11:50 AM Report abuse rate up rate down Reply

Another laternative is Banks stop covering bad checks and let the receiver of the bum chaeck take the deadbeat to court--how's that for an alternative.

August 13 2010 at 11:28 AM Report abuse rate up rate down Reply

For clarity sake--Aren't people charged an overdraft fee beciuse they wrote a bad check? Isn't that a crime? why does everyone lose sight of the fact that these people broke a law too. This is a perfect example of where this country is going in the wrong direction. I must say I am amazed at this nonsense.

August 13 2010 at 11:27 AM Report abuse rate up rate down Reply

What else is new? Most of the big banks have been doing this for a long time. We closed our accounts with B of A over this very thing, and a $35 per transaction charge. Process the debits first so the deposits don't count until after the charges are accessed. When you live on a fixed income, or from paycheck to paycheck, as most of the population does, it creates a very big hardship.

August 13 2010 at 10:18 AM Report abuse rate up rate down Reply

BB&T in the Mid-Atlantic/South is worse. They post debits before credits, regardless of when the transactions were conducted, guaranteeing the maximum number of overdrafts. They blame it on "the computer". They also charge you $2 per call if you call their customer service line more than once in a 24-hour period. Also, if you deposit cash in your account before 2pm, regardless of the amount, the maximum that will be available to you that day is $100. So, say you deposit $1000 cash in your account at noon. You will have access to only $100 for the rest of that day. The remaining $900 will not be available to you until the following day.

August 13 2010 at 9:39 AM Report abuse rate up rate down Reply

And we as the U.S Government and the American Citizens that bailed out these wonderful institutions did so why ?

Is it because we could not live without their fantastic community service and caring attitude about all of their customers ?

I wish all of them would have been sunk. Wells, Chase, Citi and BOA most of all.

August 12 2010 at 3:43 PM Report abuse rate up rate down Reply

What about processing checks first...and then deposits. Even if the deposits were made first (although in the same day). Even if the deposits are the larger of the transactions. Obviously, a subtle shift in ploicy to throw more revenue to the bank.

August 12 2010 at 2:10 PM Report abuse rate up rate down Reply