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Wells Fargo's Appeal Against $203M Judgement Rebuffed

Wells Fargo & Company’s WFC appeal, which challenged the $203 million judgment on allegations of manipulation of debit card transactions by the company in order to maximize overdraft fee, was dismissed by the Supreme Court on Monday.

In Oct 2014, Wells Fargo was ordered to pay $203 million to its customers in California as the U.S. Court of Appeals for Ninth Circuit upheld the ruling of U.S. District Judge William Alsup.

The class action was brought by California Wells Fargo customers who were charged overdraft fees on debit card transactions in the period between Nov 15, 2004 and Jun 30, 2008.

In a 2007 complaint, the customers stated that the overdraft fees resulted from the bank’s practice of ordering transactions from highest to lowest, instead of arranging transactions chronologically.  As a result, the customers incurred multiple overdraft charges while the bank derived the higher amount overdraft fees.

In Aug 2010, Judge Alsup’s findings stated that Wells Fargo was engaged in the manipulation of processing of customer debit card purchases by its California customers. Also, the bank issued misleading statements to customers with respect to its resequencing practice, to boost overdraft fees, which led to the violation of California’s Unfair Competition Law. This practice significantly impacted the bank’s low income customers as their accounts often had the lowest balance.

In Sep, 2010, Wells Fargo appealed to the Ninth Circuit Court of Appeals. In Dec, 2012, the appellate court upheld certain parts of Judge Alsup's order while reversing some other parts. Alongside, the case was directed to the district court for further proceedings. Later, in May 2013, Judge Alsup reinstated the judgment against Wells Fargo.

This resulted in the 2014 ruling against Wells Fargo, which contended that the class-action decision was not justified. However, with the rejection of its appeal, the company will now have to return $203 million in restitution to its customers.

While the issue will further add to Wells Fargo’s legal overhangs, the possible payment of restitution will lead to higher expenses.

Currently, Wells Fargo carries a Zacks Rank #3 (Hold). Some better-ranked banks include Fidelity Southern Corporation LION, First Bancorp FBP and National Bank Holdings Corp. NBHC. All these stocks hold a Zacks Rank #2 (Buy).

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WELLS FARGO-NEW (WFC): Free Stock Analysis Report
 
FIDELITY SOUTHN (LION): Free Stock Analysis Report
 
FIRST BNCRP P R (FBP): Free Stock Analysis Report
 
NATIONAL BK HLD (NBHC): Free Stock Analysis Report
 
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