A federal judge has ordered Wells Fargo to shell out over $200 million in restitution for massive overdraft fees that charged consumers amounts up to ten times greater than what would normally be incurred.
In a spirited 90-page holding, U.S. District Court Judge William Alsup wrote that Wells Fargo has devised a bookkeeping device to turn what would ordinarily be one overdraft into as many as ten overdrafts, thereby dramatically multiplying the number of fees the bank can extract from a single mistake.
According to the judge, Wells Fargo created a deceptive system whereby it processed consumers' transactions from largest to smallest, meaning that the most expensive transaction would be processed first. Under this system -- as opposed to one in which transactions were processed in chronological order -- consumers are more likely to overdraw their account multiple times, which means more overdraft fees for Wells Fargo.
The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure, Alsup wrote.
Policy not based on consumer preference
Wells Fargo countered that consumers preferred having transactions processed highest to lowest, since it means that their biggest -- and presumably most important -- bills get paid first. Judge Alsup didn't buy that argument.
The trial record here demonstrates that depositors do not prefer high-to-low posting, that there is no net benefit, and that the banks actual motive in imposing a high-to-low regime was to multiply the number of overdrafts and thereby increase its overdraft revenue, he wrote.
Rather, the judge said, the policy was driven by a single motive: greed.
The banks dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible out of its customers, he wrote.
Judge Alsup ordered Wells Fargo to stop the subject practices by November 30, and to refund any overdraft fees charged between November 15, 2004 and June 30, 2008. Those fees total over $200 million -- the amount of restitution that the bank must now provide.
The bank plans to appeal the decision.
Were disappointed with the judges ruling, company spokeswoman Richele Messick told The New York Times. We dont believe the ruling is in line with the facts of the case.
Whatever the outcome on appeal, Wells Fargo is unlikely to be hurting for cash anytime soon: the bank collected a staggering $1.8 billion in overdraft fees from California consumers between 2005 and 2007 alone.
