In the good old days, starting in 2001, Wells Fargo would process multiple debit card transactions in California by starting with the largest first, rather than the oldest. That fooled card users, triggered cascading account overrun fees and multiplied the bank’s profits―until it was sued.

Last week, the U.S. Ninth Circuit Court of Appeals affirmed a lower court decision that Wells Fargo illegally misled more than 1 million customers between November 2004 and June 2008 and owed them $203 million. “The record is replete with examples of Wells Fargo’s false and misleading statements,” the three-judge panel wrote in its ruling (pdf).

The class-action lawsuit, brought in 2007, alleged that the practice of rearranging the debit card charges just to generate overdraft fees and misleading customers about it violated state laws. The debit card practice has come under heavy criticism and many banks have now abandoned it.

A customer with $100 in his account could charge nine $10 items before charging a $90 item. Instead of the $90 item generating a single $35 (or so) overdraft fee at the end of processing, it is processed first, triggering eight overdrafts for $280.

The unsuspecting customer, thinking perhaps he has gone $80 over plus a $35 fee, deposits money to cover those charges and a little extra for future charges. But he is still underwater and poised to trigger a new wave of overdraft fees.

U.S. District Judge William Alsup agreed with the plaintiffs in 2010 and set restitution at more than $200 million...

The bank argued that state law was topped by federal law, which did not require the processing order, and appealed. The Ninth Circuit Court agreed with them about the federal law, but said the state still had a right to forbid misleading the public. They kicked it back to the District Court in 2012 and told the judge to recalculate the restitution based on just the single offense.

Upon review, Judge Alsup decided the original restitution figure was just fine in May 2013 and the Ninth Circuit agreed.

The bank, which ended the practice in 2011, is said to be considering its option.

–Ken Broder

To Learn More:

Wells Fargo Can't Escape $203 Million Overdraft Judgment (by Marisa Kendall, The Recorder)

Courts Orders Wells Fargo to Repay Debit Card Holders over Fees (by Bob Egelko, San Francisco Chronicle)

Wells Fargo Loses Appeal of $203 Million Court Award (by Karen Gullo, Bloomberg)

Federal Court Says Wells Fargo Overdraft Fees Are OK in California, but Misleading Customers Is Not (by Ken Broder, AllGov California)

Veronica Gutierrez and Erin Walker v. Wells Fargo Bank (U.S. Ninth Circuit Court of Appeals) (pdf)