Issues related to overdraft fees are far from over for
Wells Fargo & Co.
). Last week, a bid to compel arbitration of customer
disagreements related to overdraft fees was lost by the company,
according to a Bloomberg report.
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According to the Atlanta based U.S. Appeals Court ruling, the
settlement cannot be compelled by the bank following the
relinquishment of its right to do so twice earlier. The ruling
came amidst the rejection of the bank's proposition to discharge
a class-action lawsuit.
On investigation, it was found by the court that prior to
affirming its right to compel the customers to negotiate their
disputes, the customers of Wells Fargo had to undergo a long
litigation process which continued for years and resulted in
around 900,000 documents. However, as expected, the ruling came
as a disappointment for Wells Fargo and the company contemplates
to preserve its stand on this litigation.
As a matter of fact, customers have sued Wells Fargo for charging
improper overdraft fees. The company was charged of having
manipulated transaction entries to generate greater overdraft
fees. Transactions were re-sequenced by the bank so that the
largest withdrawals were deducted first instead of being cleared
in the order in which they were received.
As a result, customers' balances dwindled faster, resulting in a
larger number of 'overdrawn' transactions, each of which then
became chargeable. Moreover, as a result of such practices, funds
were overdrawn several times a day in small amounts.
In addition to Wells Fargo, over 30 banks have been sued on
similar grounds. Notably,
Bank of America Corp.
JPMorgan Chase & Co.
) have consented to paying millions to settle such claims in the
past few quarters. Thus Wells Fargo's fate relating to this
litigation will be closely followed. Notable, the suit against
the other banks are still unsettled in the Miami federal court.
However, in November 2009 and April 2010, Wells Fargo refused an
offer from a trial court to negotiate the disputes. However,
following the Supreme Court ruling in April, which stated that
federal law permits companies to force customers and employees to
settle claims individually, a motion was filed by Wells Fargo to
discharge a number of proposed class-action lawsuits.
We believe that fraudulent practices by any bank need to be
judged stringently and if customers were found having been
cheated of their hard earned money, they would need to be duly
Wells Fargo retains a Zacks #3 Rank, which translates into a
short-term Hold recommendation. Considering its fundamentals, we
also have a Neutral recommendation on the stock.