Angry consumers went to court, accusing Wells Fargo bank of compounding overdraft fees. For example, when a customer does a $5 debit card transaction with insufficient funds, and make series of other debit transactions, Wells Fargo would base the overdraft fee on the highest amount.
Tuesday, a U.S. district court judge said, "That's not right."
The court said that Wells Fargo collected $1.4 billion from California customers in just two years' time -- from 2005 to 2007. A single overdraft charge is currently $35.
The way it multiplied, according to the attorney representing consumers, is the way Wells Fargo processed the transactions.
"You do a debit transaction for $5 at a coffee shop and then you've been put into overdraft because of the way they re-ordered your transactions. You may end up paying $34 [sic] times 4 for the number of overdraft charges," said plaintiff's attorney Richard Heimann.
The bank did not make the attorney for Wells Fargo her available to discuss the court decision.
One of the consumers did speak out, explaining why she took part in the lawsuit. She said ,"it's sort of like dirty business was going on. And it felt like something needed to be done to help fix it or change business practices overall in the banking industry."
The judge has ordered Wells Fargo to pay restitution to past and current customers. The court estimates payments will be around $203 million. Existing customers will get a credit, while non-customers will get a check.
Even before today's decision, Wells Fargo has begun changes to its policies on overdraft and credit card fees as a result of new federal regulations.
Wells has already indicated those changes will lead to $530 million this year in lost revenue. Wells has already sent out notices to customers that they will no longer cover debit transactions with insufficient funds unless they choose to take its overdraft protection service.
Wells Fargo spokesman Richele J. Messick says it disagrees with the decision, saying, "...many banks process customer's transactions in high-to-low order because it gives priority to larger transactions - such as mortgage payments, rent or car payments..."
The bank says it plans to appeal.
In the meantime, a similar lawsuit against several other major banks is about to start in Florida over similar issues. This decision may set an important precedent.
