Wells Fargo & Co. (WFC) is seeking to reverse a judgment that directed it to pay $203 million in damages to customers in California over some of its debit card practices that were maneuvered to push up its overdraft fees, according to a Bloomberg report.
Wells Fargo contends that it cannot be sued under the California law for any of its practices related to debit-card transactions. In fact, its practices come under the purview of federal laws, which permit its own procedures for calculating such fees.
The Allegations
It was way back in 2007 when customers lodged a complaint for charging improper overdraft fees by Wells Fargo. The company was alleged to have manipulated transaction entries to generate greater overdraft fees. Transactions were re-sequenced by the bank so that the largest withdrawals were deducted first instead of being cleared in the order in which they were received.
As a result, customers’ balances dwindled faster, resulting in a larger number of ‘overdrawn’ transactions, each of which then became chargeable. Moreover, as a result of such practices, funds were overdrawn several times a day in small amounts.
In 2010, three customers of Wells Fargo, who sued the company on behalf of several customers in California, achieved victory. Consequently, the U.S. District Judge consented to the allegations of the customers and concluded that the practice was a fraudulent one. The company was ordered to pay $203 million to such account holders who were thrashed with multiple overdraft fees.
The Cat Fight
The lawyer for the plaintiffs argued that the practice was improper and was intended to boost the company’s overdraft fees. Moreover, the lawyer also argued that there exist limits to its authority, which has been recognized by the Office of the Comptroller of Currency and the federal agency, and such limits come under the purview of California law.
However, the lawyer for Wells Fargo argued that customers were aware of such practices and such clauses were their in the account agreement that was permitted by the Regulators including the Federal Reserve.
Yet again, another lawyer on behalf of the customers argued they were deluded about the policy by Wells Fargo. He said that the advertisement of automatic deduction of debit transactions from the account of a customer made them understand that the posting of withdrawals would be made in a chronological order.
Moreover, he argued that the claim made by Wells Fargo that it cannot be taken to trial based on the unfair business practices law of California was dubious as only allegations that get in the way of operations of the bank are pre-empted by federal regulation of banks.