Wells Fargo (NYSE: WFC), the San Francisco based banking giant, has been plagued by lawsuits for most of the past four years, along with its rivals. While many judgments have gone against them, some reprieve is coming. After getting ruled against and bashed in court for deceptive checking practices, Wells Fargo appealed and will be getting some slack. The result will save the bank some money and allow it to continue mostly in the same way it has been.
Wells Fargo was initially in trouble in California for rearranging debit card charges from customers, so the largest charge was first while subsequent, smaller charges came after. This method allowed the bank to start charging overdraft fees on customers earlier and on more transactions. The prior trial barred Wells Fargo from this practice, but the more recent trial allows the bank to continue while saving it $203 million in restitution to customers. However, the bank is still in trouble for misleading customers.
Debit card fee limits, along with limits to exchange fees, have been major parts of the financial regulatory reform act, and a source of strain for the nation’s largest banks. The banks business models became increasingly reliant on the fees, and now that they’ve disappeared their profitability has stumbled. Digging out from the mountain of litigation will be key to the rebound of financial institutions, and while the settlements incurred to date have been costly, putting them in the past will be critical to achieve stable earnings in the future.
