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Reordering Overdrafts to Cost Wells Fargo $203 Million

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Wells FargoRemember a few years ago when banks started “reordering” debits from your checking account? They repeatedly said it was for your own good, putting the largest debits first and then dinging you an overdraft fee for every overdraft? Their explanation seemed reasonable. You’d much rather your mortgage payment go through than for the check to bounce, right?

Unfortunately, while it seemed like they were doing you a favor, they were really just padding their bottom lines because by processing the largest checks first, you were more likely to overdraft. If they processed them in the order they were received, it wouldn’t maximize the likelihood you overdrew your account. By processing the largest first, you maximize the probability a $5 debit charge is going to net the bank a $35 overdraft fee.

As it turns out, U.S. District Judge William Alsup in San Francisco didn’t think that was proper either and ruled in favor of Californians in a class action lawsuit filed in 2007 (Gutierrez v. Wells Fargo, 07-05923, U.S. District Court, Northern District of California (San Francisco)). Wells Fargo has to “stop manipulating debit-card transactions without consumers’ knowledge to increase revenue from overdraft fees” and “pay about $203 million to customers because of the practice.”

Unlike processing checks, where it’s difficult to determine “when” the bank received them (they batch process checks), debit transactions are obvious. Wells Fargo would do the same reordering, largest transactions first, and this would maximize overdraft fees. To Wells Fargo’s credit, the practice was explained but buried in fine-print legalese that was way too vague.

Wells Fargo must end the practice by November 30th, 2010 and process withdraws chronologically and pay out $203 million to customers who paid multiple fees due to the change in processing (which started in 2001).

Wells Fargo Must Pay Consumers $203 Million in Overdraft Cas [Bloomberg]

(Photo: thetruthabout)

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19 Responses to “Reordering Overdrafts to Cost Wells Fargo $203 Million”

  1. Dave says:

    I’m glad to hear it – serves them right for cheating customers for their own gain. Due to a financial mixup between my wife and I, I recently had two $35 overdraft charges for debit card purchases for less than $5 each… not the end of the world, but I was not a happy camper. My banks response? Too bad. My response? Close my account.

  2. zapeta says:

    Awesome, glad to hear it and it serves them right.

  3. M. Stewart says:

    This is justice served but somehow Wells Fargo will mitigate this loss elsewhere with higher fees or some other way. These guys don’t lose–we’ll all make up this loss of income for big banks in some way, shape or form.

    Personally, I like Credit Unions. While they’re not completely innocent, you do deal with local decision makers and usually that translates into more, above-board business dealings.

  4. Bill says:

    We need some sort of X 10 predatory practice law.

  5. Jack Thomas says:

    It’s about time banks are being held accountable for their actions. Hopefully this will set a precedent and cause other banks to stop their practices of gouging their customers!

  6. lostAnnfound says:

    I would like to know who was the person who originally thought up this scheme in the first place.

  7. That’s awesome news. They deserve it.

  8. ziglet19 says:

    Yes, I am so glad to hear it. I notice when I get my paycheck direct-deposited, it shows up in my account just after midnight on payday. However, Chase will list any purchase I make on payday before the check deposit, hoping to get some overdraft fees there too. Hate that!

    • Sarah in Alaska says:

      Yes. This is something I’ve heard so many people complain about; posting all debits before deposits regardless of timing. I was hoping the court decision addressed the order of all transactions not just debits. Sounds like it doesn’t.

  9. LaToya Irby says:

    Great news for the Wells Fargo customers who suffered. This should be made into a universal law. It’d be nice if everyone could get a refund of overdraft fees caused by re-ordering.

  10. jsbrendog says:

    score one for the lay man. take that big guy

  11. Kasey says:

    I believe that beginning this week bank’s are actually required to allow customers to either opt in or out of overdraft protection.

    However – it’s for ATM and everyday debit card transactions only – not checks or automatic payments.

    Basically it prevents the banks from charging you $35 for a $3.50 overdraft.

    Apparently – banks are saying about half of their customers are opting out, half want to keep the overdraft protection.

    Either way – the banks will be losing money – and that means we will be paying extra fees.

    I know Jim has covered some of these topics before – but check out some other POVs in these posts.

    http://blog.checkadvantage.com/2010/08/12/about-your-debit-card/

    http://blog.checkadvantage.com/2010/08/13/bank-fees/

    • susan breneman says:

      to late for me:
      Complaint, on Fri. the 4th of Feb. I closed my acct. with wells fargo after 20 years.I had an atm/visa/overdraft card. I received a come on letter stating if I would use my credit card I would receive this great incentive $$, so I began using my atm/ visa card for all my purchases. I apparently had a 2 day lag in a deposite and boom it began 2 what would have been bounced checks, good save with my over draft right? Wrong from that point on every time I used my card for purchases I was charged as if it were a cash advance fee. I had my other credit card in my purse and remember the incentive use your card and you will receive $$, I used my card for every thing. Suddenly I received a total of $375 in over draft fees in 6 weeks time. Why? It wasn’t this card it was my other card? Huh? I don’t have another card and they can show that I have ever used it, dang wish I still had the letter. The best they could offer me was to take off 2 of the like dozen or so fees. so I dropped them like a use tampax. It is no wonder they are involved in a lawsuit.

  12. Sheila says:

    Already Wells Fargo/Wachovia has substantially reduced its interest rates on CD’s. So we depositors are paying for the bank’s mistakes, far in advance of the November 30 effective date.

  13. susan breneman says:

    Complaint, on Fri. the 4th of Feb. I closed my acct. with wells fargo after 20 years.I had an atm/visa/overdraft card. I received a come on letter stating if I would use my credit card I would receive this great incentive $$, so I began using my atm/ visa card for all my purchases. I apparently had a 2 day lag in a deposite and boom it began 2 what would have been bounced checks, good save with my over draft right? Wrong from that point on every time I used my card for purchases I was charged as if it were a cash advance fee. I had my other credit card in my purse and remember the incentive use your card and you will receive $$, I used my card for every thing. Suddenly I received a total of $375 in over draft fees in 6 weeks time. Why? It wasn’t this card it was my other card? Huh? I don’t have another card and they can show that I have ever used it, dang wish I still had the letter. The best they could offer me was to take off 2 of the like dozen or so fees. so I dropped them like a use tampax. It is no wonder they are involved in a lawsuit.

  14. djm says:

    Ha! That isn’t the worst of it. I’m fairly young and easily taken advantage of! I made sure to set my overdraft protection to “decline” my card when funds are not present. This seemed to be the case; but upon checking my account thinking all of these latest purchases were allowed because I had the money; I suddenly owed over 500 dollars! When I called, they told me that I authorized my method of overdraft to change! That means all of those purchases had a 35$ charge on top them. Sounds like yet another ploy to pad the funds of dear ol’ Fargo. Let that alone be a warning of the dishonesty this company has used to stay alive!


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