In the latest of bad and embarrassing news for the big banks, Wells Fargo & Co. has been ordered to pay more than $200 million for manipulating and multiplying overdraft fees. U.S. District Court Judge William Alsup, sitting in Northern California, found that Wells Fargo used “a bookkeeping device” that turned one instance of overdrawing an account into as many as ten, allowing the bank to multiply the number of fees it could collect from a single mistake. Judge Alsup heard the case without a jury. There have been several federal decisions that have put overdrafts – a huge source of revenue for most banks – into harsh focus. Wells Fargo, like many other banks, routinely processes a customer’s largest purchases first, rather than running each transaction in the order in which it occurred. Judge William Alsup ruled that by doing so, Wells Fargo unfairly created situations in which a customer could be charged up to ten overdraft fees of $35 for going over the limit by only a few dollars.
Judge Alsup wrote further that “the bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure.” The ruling is a fraction of the $1.8 billion in overdraft fees that the bank collected in California from 2005 to 2007. Overall, the banking industry makes up to $38 billion a year in overdraft fees, according to the Federal Reserve. Finally, Judge Alsup wrote:
Internal bank memos and emails leave no doubt that, overdraft revenue being a big profit center, the bank’s dominant, indeed sole, motive was to maximize the number of overdrafts and squeeze as much as possible out of [customers].
In spite of the judge’s ruling, Wells Fargo still claims its “method of processing transactions has been appropriate and consistent with customer’s interests and the laws and rules of governing regulatory authorities.” With a show of typical corporate arrogance, the bank announced it had “no intention of changing the way that it processes transactions.” That’s most disappointing, but not a total surprise. Wells Fargo is very powerful and politically influential.
Sources: American Banking and Market News
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