Wells Fargo & Company (NYSE:WFC) has had an order compelling it to pay customers $230 million in restitution vacated today by a California Judge. The company had been liable for the return of overdraft fees it charged customers, based on what one court found to be unfair businesses practices.
The source of the fees was the way in which Wells Fargo & Company (NYSE:WFC) charged debit card purchases to its customers accounts. Starting in 2001, the bank began charging purchases with debit cards to customer accounts starting with the largest. The practice ensured that its customers would be liable for the greatest possible mount in overdraft fees.
Before the 2001 decision, the company charged debit card purchases to consumer accounts, beginning with the smallest purchases. That practice ensured the company received the lowest possible amount in overdraft fees. The ruling against the firm was made last August, and was based on a 2007 complaint.
The ruling compelled the firm to pay $230 million in restitution to customers who were affected by the overdraft fees. It also placed an injunction on the bank's use of the system that led to the greater fees being charged. Today's ruling overturned both of those punishments. The ruling asserted that the original injunction was based on a California statute that was preempted by Federal law, and was therefore inapplicable.
The 9th U.S. Circuit Court of Appeals, which heard the Wells Fargo & Company (NYSE:WFC) case, did decide to return the case to trial based on unfair competition laws in the state of California. A new trial will be scheduled in order to establish the guilt and necessary reparations for that infringement.
The ruling on overdrafts was not the only instance in which Wells Fargo & Company (NYSE:WFC) was seen to have infringed on regulations this year. In October it was announced that the bank, along with several of its peers, was being investigated by the SEC over the sale of risky mortgage bonds.
Shares in Wells Fargo & Company (NYSE:WFC) were trading down today by a thin margin. The company's shares have risen by almost 25% so far in 2012. The bank gained strongly in the first quarter of the year, benefiting from the strong gains in the financial industry.
The return of $230 million to the company's account will do little to sway the firm's performance one way or another, but its license to continue charging customers in a way that maximizes its overdraft fees will be a boon for the company for years to come.
If the decision stands, and does not fall to further appeal, it will allow not only Wells Fargo & Company (NYSE:WFC), but also its competitors to charge for overdrafts in this manner. It is clear that this type of clever accounting is bad for consumers, and if it were to be highlighted might dissolve the relationship between the bank and its customers.
These types of charges, or at least media coverage of them, gives shape to the general antipathy felt by the American people toward the banking industry since the financial crisis. If that antipathy did not have shape it might be given an opportunity to dissipate.
The successful appeal by Wells Fargo Company belies an unwillingness to allow this to happen.