San Francisco, CA: US District Judge William Alsup has issued an order to reinstate a $203 million judgment against Wells Fargo Bank. The judgment is based upon the court's findings, as affirmed on appeal by the Ninth Circuit, that Wells Fargo violated California's unfair competition law by deceiving its customers that debit card purchases would be posted chronologically to their accounts when in fact Wells Fargo posted them in a high-to-low order for the sole purpose of generating overdraft fees.
The case before Judge Alsup was brought on behalf of California Wells Fargo customers who, from November 15, 2004 to June 30, 2008, incurred overdraft fees on debit card transactions as a result of the bank's practice of sequencing transactions from highest to lowest.
On August 10, 2010, Judge Alsup issued a 90-page opinion finding that Wells Fargo manipulated its processing of customer debit card purchases by its California customers, and made misleading statements to consumers regarding is resequencing practice, to maximize overdraft fees in violation of California's Unfair Competition Law. This practice had the greatest impact on the bank's low income customers because their accounts often had the smallest balances.
As noted above, instead of posting transaction chronologically, Wells Fargo deducted the largest charges first, drawing down available balances more rapidly and triggering a higher volume of overdraft fees. Judge Alsup ordered that Wells Fargo return to its customers approximately $203 million in restitution and enjoined the abusive accounting practices. Judge Alsup's August 10, 2010, decision followed two and half years of extended litigation that culminated in a two-week bench trial which ended in May 2010.
On September 9, 2010, Wells Fargo filed an appeal with the Ninth Circuit Court of Appeals. On December 26, 2012, the appellate court issued an opinion upholding and reversing portions of Judge Alsup's order, and remanded the case to the district court for further proceedings.
The appellate court found the National Bank Act preempted application of state law to Wells Fargo's decision to use high-to-low posting. Importantly, the appellate court also found that false and misleading statements by Wells Fargo were not preempted and the bank could be held liable for affirmative misrepresentations in violation of California's Unfair Competition Law.
In his decision, Judge Alsup reinstated the judgment against Wells Fargo, finding: "This order is not penalizing Wells Fargo for a practice protected by federal preemption. Instead, it is penalizing Wells Fargo for affirmatively misleading the class as to what the practice was, namely engaging in a practice likely to mislead the class to believe that processing would be done in chronological order when, in fact, processing was done in high-to-low, non-chronological order."