Federal judge blasts Wells Fargo for overdraft fees
A lawsuit in California concerning Wells Fargo and its practices regarding overdraft fees concluded recently. The presiding judge, William Alsup, handed a ruling which ordered Wells Fargo to pay back a substantial sum to Californians that it had unfairly dinged for overdrafts. The judge found the bank had deliberately manipulated overdraft practices to profit heavily, and did not mince words in his decision to penalize the bank for its actions. Overdraft fees are controversial, and some contend that people are better off getting a cash advance than using overdraft protection.
Judge orders $230 million in restitution
According to Forbes, Federal judge William Alsup ordered Wells Fargo to pay $230 million to customers it has charged overdraft fees. Depending on the amount of the overdraft, a single overdraft fee can carry an APR far higher than a payday loan. The judge also highlighted that Wells Fargo had a practice of clearing the largest charges first, which guaranteed that customers would lapse into overdraft and be charged $35, even if customers overdrew their accounts by a few dollars.
You can bank on high fees
Wells Fargo also didn’t extend the option for customers to decline a transaction that would put them into overdraft. The decision highlighted documents from the bank that demonstrate the bank establishing covert lines of credit for checking accounts, guaranteeing transactions wouldn’t be declined and the account holder would be charged. The judge also cited that internal communications from Wells Fargo proved the motive was explicitly to profit from overdraft fees. The bank generated $1.4 billion from 2005 to 2007 in California alone. The interest rate on overdraft fees can be higher than if a person were to get a personal loan to float them.
Overdraft practices overhauled
There are new rules in place concerning overdraft practices, and other credit from banks such as credit cards. The Federal Reserve instituted a rule that mandates banks give customers the option of enrolling in overdraft protection, according to CNN Money. Overdraft fees generate more than $38 billion in income for banks annually.