Wells Fargo Now Favors Arbitration in Long-Running Overdraft Fees Lawsuit

Atlanta, GAThe defendant in an excessive bank overdraft fees lawsuit petitioned an appeals court back in August to compel more than a million Wells Fargo account holders allegedly hit with excessive bank fees to individually pursue a remedy through arbitration, rather than through the courts.

The New York Post (08/25/17) reports that Wells Fargo made a similar argument to a trial court in Florida, but their effort was rebuffed by the trial judge. Wells Fargo appealed. A three-judge appellate panel with the US Court of Appeals for the Eleventh Circuit heard their appeal August 24 in Atlanta. So far there is no record of a ruling, and the panel did not indicate when a ruling could be expected.

According to the New York Post the bank overdraft fees lawsuit has been going on since 2008, when plaintiffs sued Wells Fargo over its practice of allegedly re-ordering transactions in an attempt to exploit the account and earn additional fees.

The Los Angeles Times (08/24/17), reporting on the same litigation, illustrates how such a process can force an account holder into paying more fees than might otherwise be justified:

“A customer has $100 in an account,” the Los Angeles Times writes. “The customer first makes four transactions of $20 and then, later that day, has a $90 transaction. If the transactions are taken in chronological order, only the final $90 transaction would cause an overdraft and trigger a fee. But if the transactions are reordered so the $90 transaction is first, each of the four $20 transactions would trigger a separate overdraft fee.”

The Los Angeles Times reported that Wells Fargo initially pursued a litigation strategy for much of the banking overdraft fees lawsuit, given that the lawsuit was stylized as a class action from the beginning. At some point later in the process Wells Fargo decided to alter course, pursuing a strategy favoring arbitration instead.

A common component in the fine print of banking agreements is the provision for arbitration in order to resolve disputes, rather than litigation that open a door to class actions. In the case of Wells Fargo, according to the Los Angeles Times, arbitration clauses in Wells Fargo contracts were permissive, rather than mandatory, “meaning that in the case of a dispute either party can request arbitration within a reasonable period of time.”

However, one jurist on the three-judge appellate panel appeared to take exception to the delay in seeking arbitration so long after the lawsuit was established in 2008, with the defendant initially pursuing litigation strategy before switching gears.

The New York Post reported that Judge Adalberto Jordan, of the Eleventh Circuit, appeared to take umbrage to the change in strategy so late in the game. “I mean, parties choose their litigation strategy, and sometimes they predict the future correctly and sometimes they don’t,” the judge said, according to an audio recording of the arguments released August 25 as cited by the New York Post.

Plaintiffs assert that Wells Fargo in San Francisco refused to let customers opt out of overdraft protection programs; didn't get customer consent before processing transactions that would lead to overdraft fees; and failed to provide customers with accurate balance information to help avoid overdrafts, among other allegations.

The Consumer Financial Protection Bureau (CFPB) announced new regulations in July that would bar financial institutions from invoking mandatory arbitration as a way to derail consumers from pursuing class action lawsuits through the courts. Various groups are in support of this rule, including a collection of some 400 law professors and academics in all 50 states decrying efforts to block the rule by the US House of Representatives and the US Senate.

Jean Sternlight, the Saltman professor of law at UNLV Boyd School of Law and the director of the Saltman Center for Conflict Resolution, wrote in an op/ed piece in Law360 (09/25/17) that she and her academic colleagues believe in the merit of the CFPB imitative and are urging the US Senate to support the new CFPB rules. “The CFPB’s well-grounded data and analysis provide solid support for the arbitration rule,” Starlight writes.

Specific case info for the Wells Fargo litigation was not available.