- Bargaineering - http://www.bargaineering.com/articles -

Reordering Overdrafts to Cost Wells Fargo $203 Million

Remember 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 [3] [Bloomberg]

(Photo: thetruthabout [4])