A California federal judge has ordered Wells Fargo to refund $203 million in overdraft fees to customers affected by the bank's "unfair and deceptive" practice of clearing transactions from largest to smallest dollar amount.
U.S. District Court Judge William Alsup found that Wells Fargo acted wrongfully to trigger overdraft fees. Alsup said he is ordering restitution because Wells Fargo devised "a trap that would escalate a single overdraft into as many as 10 through the gimmick of processing in descending order. It then exploited that trap with a vengeance, racking up hundreds of millions off the backs of the working poor, students and others without the luxury of ample account balances."
At trial, internal bank documents were found which shows how Wells Fargo relied upon and encouraged overdraft fees. Research has found that overdraft fees have become the single largest source of consumer fee income for banks.
At Wells Fargo, overdraft fees are the second-largest revenue source for its consumer deposits group, generating more than $1.4 billion in California from 2005 to 2007, according to court documents.
Banks, including Wells Fargo, have long maintained that they clear large before small transactions to give priority to important payments for mortgages and cars. But this also generated more fees because it empties the bank account more quickly.