Hit by Wells Fargo overdraft fees? Your right to sue may be taken away

Customers use a Wells Fargo ATM at one of their bank branches in Miami, Florida. A class-action case in Miami federal court against Wells Fargo asserts the bank violated consumer protection laws in how it handled debit fees.
Customers use a Wells Fargo ATM at one of their bank branches in Miami, Florida. A class-action case in Miami federal court against Wells Fargo asserts the bank violated consumer protection laws in how it handled debit fees. Getty Images

Consumers hit by Wells Fargo’s overdraft fees may soon know whether they can keep fighting for relief through a class-action suit or have to pursue their claims through one-on-one arbitration.

This month, a federal appeals court will hear arguments affecting a 2009 class-action suit in Miami federal court that maintains Wells Fargo squeezed unsuspecting customers out of billions by manipulating debit card charges.

According to the complaint, rather than debiting fees in the order in which the charges were incurred, the bank debited the most expensive charges first. That change raised the likelihood that accounts would be charged multiple overdraft fees. In one example detailed in the lawsuit, the bank charged multiple $35 fees against a single account holder for purchases as low as $1.07 that would have been valid had the charges been assessed chronologically.

Wells Fargo wasn’t alone in this practice. Thousands of victims nationwide are part of lawsuits brought against more than 30 banks. The lawsuits have been consolidated into the class-action case in the Southern District Court of Florida.

Wells Fargo is the only major bank involved that is still trying to force its customers out of court and into a process called mandatory arbitration. Other large banks named as defendants, including Bank of America and JP Morgan, have resolved their parts of the case with settlements as high as $410 million.

If Wells Fargo’s request is granted, each customer would be forced to bring their case individually against the bank under conditions set by Wells Fargo.

In some cases, the charges were all made in the same day; in other cases they were made over several days.

Wells Fargo had been debiting accounts with largest-to-smallest charges for about a decade before it ended the practice in 2010 and began posting charges in chronological order, according to a Wells Fargo spokesperson. The company implemented chronological order for checks in 2014. Since then, the bank also has instituted low balance alerts and a daily cap of three overdraft fees per consumer account.

The plaintiffs argue that Wells Fargo’s practices were deliberately deceptive and violated consumer protection laws and its Consumer Account Agreement.

On Aug. 24, the U.S. Court of Appeals for the Eleventh Circuit will hear arguments on whether to grant the bank’s motion to resolve the disputes through arbitration. It is the bank’s fourth attempt to move the case to arbitration.

Mandatory arbitration

Mandatory arbitration clauses are sometimes included by companies in their terms of use contracts and require consumers to give up the right to sue or participate in a class-action lawsuit.

Opponents of mandatory arbitration argue that the practice allows companies to stack the deck, as companies choose their own arbitrators and set the standards for evidence. According to a Wells Fargo spokesman, the conditions are set by the American Arbitration Association, and that the arbitrators and standards for evidence are similarly set by the AAA.

A spokesperson for Wells Fargo said in a statement, “Wells Fargo continues to believe that arbitration is a fair, efficient and effective way for a customer to pursue a legal claim and resolve a legal dispute. For many years, high-to-low posting order was standard in the banking industry.”

Between 2009 and 2016, 215 Wells Fargo customers filed arbitration cases to settle consumer banking disputes, according to a March 2017 report by a nonprofit that studies consumer arbitration. Of these cases, 48 resulted in a final hearing and award. The hearings awarded consumers a total of $440,888 and awarded Wells Fargo more than twice that.

That report was produced by the Arizona-based Level Playing Field.

In July of this year, the Consumer Financial Protection Bureau outlawed the practice of mandatory arbitration for banks, credit card companies, and other lenders.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” said CFPB Director Richard Cordray in a public statement released at the time of the new rule. “These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up.”

Since the July rule is not retroactive, it will only affect similar cases brought in the future, not the current Wells Fargo litigation.

The overdraft case now pending in Miami affects customers from 49 states. A federal judge ruled against Wells Fargo in a class-action case tried separately for California customers. In 2010, the judge ordered Wells Fargo to pay $203 million to customers in the state who were misled about the fees.

Other recent scandals

Wells Fargo’s reputation has already been battered by a number of recent scandals.

Last year, it was fined $185 million in a high-profile scandal for opening as many as 2.1 million phony accounts without customer approval, as employees faced pressure to meet quotas. The bank received preliminary approval last month to settle a related class-action lawsuit with customers for an additional $145 million.

In the most recent scandal, the company disclosed in July that it may have pushed thousands of car buyers into default by enrolling loan customers in auto insurance they didn’t want or need. On Sunday, customers filed a class-action lawsuit in San Francisco federal court in response.

This article was updated to clarify the impact of debit reordering on consumer accounts and to include Wells Fargo’s assertion that arbitration standards are set by the American Arbitration Association.