Wells Fargo (NYSE: WFC), the San Francisco based banking giant, also happens to be the biggest U.S. home lender. Through their many lines of business, one source of revenue in particular has been jostled by recent regulations – overdraft fess. The bank has sought to challenge the process, as it has become a growing issue with customers.
Overdraft fees have been specifically targeted by regulators in recent years, as there has been a lack of norms or averages in the industry, leaving consumers at the mercy of their particular bank. Wells Fargo sought to challenge part of the reforms, but has lost a bid to force the arbitration of customer disputes about overdraft fees.
The U.S. Appeals Court based in Atlanta ruled today that the bank can’t force arbitration after twice waiving its right to do so, denying the bank’s motion to dismiss a class-action lawsuit. The court found that the bank put the customers through a litigation process that lasted years and yielded about 900,000 documents before asserting its right to force the customers to arbitrate their dispute.
Customers have sued more than 30 banks claiming they reordered overdrafts to maximize fees. Last year, the Charlotte based Bank of America Corp (NYSE: BAC) agreed to pay $410 million to settle customer claims, JPMorgan Chase (NYSE: JPM) similarly reached a preliminary agreement in February to pay $110 million to resolve a lawsuit. A suit against other banks is pending in federal court in Miami.
Wells Fargo declined a trial court’s offer to arbitrate the disputes in November 2009 and April 2010. The company filed a motion to dismiss five proposed class-action, or group, lawsuits two days after the Supreme Court ruled in April that federal law allows companies to compel customers and employees to arbitrate claims individually, trumping state laws that may bar such provisions. Before the Supreme Court ruling, laws in some states made arbitration provisions that contained class-action waivers unenforceable, the bank said.
Wells Fargo acted “inconsistently” with the arbitration right, the appeals court said. “If we were to compel arbitration, the plaintiffs would suffer substantial prejudice,” the court said.
The appeals case is Garcia v. Wachovia, 11-16029, U.S. Court of Appeals for the Eleventh Circuit. The trial court case is In Re Checking Account Overdraft Litigation, 09-md-02036, U.S. District Court, Southern District of Florida (Miami)
