Class Action Plaintiffs Awarded $203 Million in Lawsuit Alleging Manipulation of Bank Overdraft Charges - Gutierrez v. Wells Fargo

Cash_Machine_in_Trogir.JPGA California federal court awarded $203 million in damages to a class of plaintiffs in Gutierrez v. Wells Fargo Bank, NA, 730 F.Supp.2d 1080 (N.D. Cal. 2010). The lawsuit alleged that the defendant bank overcharged the plaintiffs, who held deposit accounts at the bank, for overdraft fees, using a series of deceptive bookkeeping techniques. A similar bookkeeping trick was the subject of an Illinois lawsuit resulting in a settlement, Schulte v. Fifth Third Bank, 805 F.Supp.2d 560 (N.D. Ill. 2011).

According to the court’s ruling in the Gutierrez case, Wells Fargo charged individual depositors more than $1.4 billion in overdraft fees between 2005 and 2007, just in the state of California. Gutierrez, 730 F.Supp.2d at 1082. The lawsuit, filed on behalf of individual depositors, alleged that Wells Fargo used a bookkeeping trick known as “resequencing” to turn a single $35 overdraft charge into as many as ten overdraft charges. The bank would then hide this technique behind a “facade of phony disclosure.” Id. The court outlined how the bank would sequence transactions from the highest amount to the lowest amount, out of chronological order, often resulting in a negative balance in an account earlier than if it had sequenced the transactions in any other order. This maximized the amount of overdraft fees the bank could charge to the account. Id. at 1088.

The allegations in the Schulte case were similar to those in Gutierrez. Fifth Third Bank allegedly processed ATM and debit card transactions out of chronological order. During a posting period, the bank would process the largest transactions first, proceeding in high-to-low order. Schulte, 805 F.Supp.2d at 565. This allegedly almost guaranteed that, if a depositor overdrew their account during that posting period, the bank could collect more overdraft fees.

The Gutierrez plaintiffs filed suit in November 2007, alleging that resequencing and other bookkeeping tricks violated California’s Business and Professions Code. The class of plaintiffs alleging damages due to resequencing survived Wells Fargo’s motions for summary judgment and to decertify the class. The court defined this class as customers who incurred overdraft charges on debit cards between November 2004 and June 2008, based on “the bank’s practice of sequencing transactions from highest to lowest.” Gutierrez, 730 F.Supp.2d at 1083. The case went to trial in April 2010.

The court, after a two-week trial, held that Wells Fargo acted in bad faith by sequencing transactions by highest to lowest amount, as well as by commingling debit card transactions with other transactions. It also found that the bank failed to disclose the resequencing practices as required by law. It rejected the preemption arguments and other defenses offered by the bank, enjoined the resequencing practice, and awarded the plaintiffs $230 million in restitution.

The Schulte case, first filed in November 2009, resulted in a settlement approved by the U.S. District Court for the Northern District of Illinois in July 2011. The settlement provided a $9.5 million fund for consumers affected by the resequencing scheme between October 2004 and July 2010. This amount covered restitution, attorney’s fees, and costs. Fifth Third also agreed to cease its use of the resequencing technique.

The consumer rights attorneys at DiTommaso Lubin represent victims of bank fee fraud and other violations of consumer protection laws throughout the Chicagoland area including Cook, DuPage, Lake, Kane, McHenry and Will Counties and in the Mid-West region including Indiana, Wisconsin and Iowa. To schedule a confidential consultation with one of our attorneys, please contact us online, at (630) 333-0000, or at (877) 990-4990.

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Photo credit: By Pudelek (Marcin Szala) (Own work) [CC-BY-SA-3.0], via Wikimedia Commons.