Judge orders Wells Fargo to pay $203 million in overdraft fee class action

August 11, 2010 by

On August 10, 2010, A federal judge in California ordered Wells Fargo Bank to pay restitution of $203 million to California consumers who overdrew their checking accounts and were charged excessive overdraft fees because the bank re-ordered electronic debit transactions from the high dollar amount to the lowest dollar amount so as to deplete the customer’s available funds as quickly as possible while maximizing the amount of “Overdraft fees” collected by the banks.  The practice generated massive revenues.  Between 2005 and 2007, Wells Fargo assessed over $1.4 billion in overdraft penalties in California alone.

U.S. District Judge William Alsup found the bank engaged in unfair and deceptive practices, in violation of state law by reordering debit charges from highest to lowest, resulting in multiple overdraft charges instead of just one. Each overdraft fee ranged from $22 to $35, even on overdrafts of $1.75 for a cup of coffee.

In a scathing opinion, Alsup found “the bank went to great lengths to bury the words deep in a lengthy fine-print document and the words selected were too vague to warn depositors, as even the bank’s own expert conceded.”  He also said “gouging and profiteering were Wells Fargo’s true motivations behind the high-to-low switch” and that its “neat tricks generated colossal sums per year in additional overdraft fees, just as the internal bank memos had predicted.”

Judge Alsup also pointed to a “smoking gun” document.  In early 2002, bank executives became concerned when overdraft (OD) and non-sufficient fund (NSF) fee revenue suddenly dropped. A top executive at Wells Fargo sent an e-mail that stated “Given our dependence on a small set of OD customers (4% generate 40% of total OD/NSF revenue), a small change in behavior within this group can cause a large change in revenue.”  Two weeks later, the executive reported that the good news was that the decline was due to higher-than-normal deposits of income-tax returns, which would soon be spent so revenues would increase again.  You can see the court’s order if you click on: Wells-Fargo-Order-after-Trial.

Last year, we filed two similar separate class action complaints against Wells Fargo and U.S. Bank on behalf of all Oregon customers who were charged excessive overdraft fees because the banks implemented the re-ordering of electronic debit transactions from the highest dollar amount to the lowest dollar amount.  Those cases, along with hundreds of others, have now been transferred to Florida by the Multidistrict Litigation Panel.  We are conducting discovery now, and the court’s opinion should provide us with a road map for these other cases.

Steve Larson
An experienced trial lawyer who handles both hourly and contingent fee cases, Steve has expertise in class actions, consumer cases, antitrust litigation, securities litigation, corporate disputes, intellectual property disputes, unfair competition claims, employment matters, and disputes involving family wealth. Steve regularly represents individuals and businesses in federal and state court and has obtained class-wide recovery in multiple class actions. A veteran practitioner, Steve's clients value his creative approach to resolving complex litigation matters.

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