U.S. District Judge William Alsup today ordered Wells Fargo to pay back an estimated $203 million in a class action that alleged the bank processed debit card overdrafts so as to maximize fees and squeeze more revenue from customers.
In a 90-page order ( .pdf ) filed today following a bench trial last spring, Alsup slammed the bank for a "bookkeeping device" it used to multiply overdrafts.
"These neat tricks generated colossal sums per year in additional overdraft fees, just as the internal bank memos had predicted," he wrote. "The bank went to considerable effort to hide these manipulations while constructing a facade of phony disclosure."
Lawyers from both sides of a larger multidistrict class action against multiple banks in Florida paid close attention to the case, with some even observing the trial.
The plaintiffs in the class action alleged that the bank routinely deducted customers' largest charges first, thus drawing down their available balances much more rapidly. Once the money was gone, each subsequent debit would incur its own overdraft fee.
At trial, the witnesses for the bank offered other justifications for processing debits as it did.
Alsup noted in his order that collecting overdraft fees is a big business for Wells Fargo -- the bank reaped over $1.4 billion in overdraft penalties between 2005 and 2007 in California alone.
Alsup found that Wells Fargo violated Section 17200 of the California Business and Professions Code.
And in a sentence that could be troubling to Wells Fargo, he hinted that there might be even more restitution at stake than $203 million -- an estimate generated by a plaintiff expert.
"Counsel should consider whether restitution should be extended up to the date of the injunction's Effective Date rather than merely up to the end of the class period," Alsup wrote. The effective date is Nov. 30, 2010.
Wells Fargo's lawyer, Covington & Burling partner Sonya Winner, referred a request for comment to the bank. A Wells Fargo spokeswoman says the bank plans to appeal.
"We believe Wells Fargo's method of processing transactions has been appropriate and consistent with customers' interests and the laws and rules of governing regulatory authorities," she said in an e-mail. "While different customers may have a variety of different preferences, many banks process customer's transactions in high-to-low order because it gives priority to larger transactions -- such as mortgage payments, rent or car payments -- which are typically customers' high-priority payments."
Lead trial attorney for the plaintiffs, Richard Heimann of Lieff Cabraser Heimann & Bernstein, said in a statement that Alsup's decision was "not only an actual victory for Wells Fargo customers, but a symbolic victory for consumers throughout the country who are subjected to these kinds of oppressive business practices."