The Ninth Circuit Court of Appeals has ruled that Wells Fargo Bank NA will have to pay a $203 million class action penalty for misrepresenting the way it processed debit cards in order to maximize overdraft fees. The bank’s false statements were found by the court to support the lower court’s decision. According to the panels’ opinion, “the record is replete with examples of Wells Fargo’s false and misleading statements.” The panel also said that the district court’s calculation of the restitution award was justified because it was “based on factual findings that are not clearly erroneous.” Wells Fargo’s arguments that restitution is barred by the federal Due Process Clause or Rules Enabling Act was rejected by the panel.
The ruling comes after the Ninth Circuit had rejected the penalty last January, when it found that Wells Fargo was allowed to dictate the order in which it processes customer transactions. The court found further that there was nothing fraudulent about deducting charges in a “high-to-low fashion” that depleted retirement funds more quickly, which the award had been predicated on. But the appellate court had found that Wells Fargo’s marketing materials did not make that order clear, and returned the case to the trial court.
U.S. District Judge William Alsup reinstated the entire $203 million penalty in May, finding that the bank’s marketing materials violated fraud provisions of the state’s consumer protection law. Wells Fargo argued that Judge Alsup based the award on an expert’s calculation that didn’t “quantify damages” solely from the misrepresentation claims. Well Fargo’s argument was that Judge Alsup did not determine that the misrepresentations independently caused the $203 million in harm, but instead that he found it was not possible to separate out the misstatements’ impact.
Along with the penalty, Judge Alsup also reinstated a permanent injunction on the false marketing practices – a decision the appellate panel vacated in its latest opinion, saying it was overly broad, as Well Fargo had previously argued. The appellate panel wrote in its opinion that the district court should enter an injunction that does not reference “false or misleading statements” about the posting order of checks or ACH transactions.
In the case, filed in 2008, Veronica Gutierrez claimed she was billed $143 on a $49 overdraft, and Erin Walker complained of being charged $506 in overdraft fees because she exceeded her balance by $120. They contended that the bank let customers believe that transactions would be posted in “chronological order,” when instead Wells Fargo was deducting money in “high-to-low order,” which helped the company levy more than $1.4 billion in overdraft charges from 2005 to 2007.
After a bench trial, Judge Alsup ruled in August 2010 that Wells Fargo had reinforced customers’ belief that deductions would be made in the order purchases were made and hid its “high-to-low practices,” ordering the $203 million in restitution. The Ninth Circuit’s January decision found that Wells Fargo was free to deduct money from customers’ accounts in a “high-to-low fashion,” which it considered a pricing decision allowed by federal law. Circuit Judges Sidney R. Thomas, M. Margaret McKeown and William A. Fletcher sat on the panel for the Ninth Circuit.
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