Class Action Claims Wells Fargo Failed to Clearly Disclose Overdraft Practices to Customers

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Wells Fargo faces a proposed class action in which the bank stands accused of failing to clearly disclose its overdraft practices to accountholders.

The 36-page lawsuit, filed against Wells Fargo & Co. and Wells Fargo Bank, N.A., claims the defendants have violated Federal Reserve Regulation E by suggesting that their overdraft policies use an accountholder’s actual balance to assess overdraft fees when the bank actually uses a “different, artificially lower balance.”

According to the case, Wells Fargo’s “ambiguous, inaccurate and misleading description” of its overdraft practices has financially impacted “the most vulnerable among the banking population”—namely, young, lower-income, and non-white accountholders, who the suit says are among the most likely to be assessed overdraft fees.

The case explains that Wells Fargo assesses overdraft fees based on an accountholder’s “available balance,” which is a term recognized by the financial industry as the actual balance minus any funds held by the financial institution from deposits or authorized debit transactions “that have not come in yet (and may never come in) for payment.”

Per the complaint, using the available balance, which will always be equal to or lower than the account’s actual balance, results in 10 to 20 percent more overdrafts than would be the case if the actual balance was used.

The lawsuit notes that while there is no regulation prohibiting banks from assessing overdraft fees based on an account’s available balance, the terms of the overdraft program must be “clearly and accurately disclosed” in accordance with Regulation E. According to the suit, Wells Fargo’s opt-in overdraft disclosure agreement, titled “What You Need to Know About Overdrafts and Overdraft Fees,” includes “ambiguous and misleading language” to describe the circumstances under which customers will be assessed an overdraft fee.

More specifically, the case claims the document does not disclose that the bank uses a customer’s available balance to determine whether a transaction overdraws the account and instead implies that the actual account balance will be used. According to the complaint, Wells Fargo states in the disclosure agreement that an overdraft occurs “when you do not have enough money in your account to cover a transaction but we pay it anyway,” making no mention of an “available” balance or how the bank’s holds on customers’ funds affect the balance. The lawsuit stresses that even when there is a hold on a customer’s funds, the money has not been removed from the account.

Per the complaint, whether the available or actual balance is used to determine an overdraft is material to customers, who upon reading Wells Fargo’s disclosure agreement are left with the impression that their actual account balance will be used to determine whether their account has been overdrawn.

The lawsuit alleges that because Wells Fargo failed to provide overdraft information “in a clear and understandable way,” the bank never obtained proper informed consent from customers to enroll in its overdraft program and therefore was not legally permitted to charge any overdraft fees.

“Wells Fargo’s assessment of all overdraft fees against customers for one-time debit card and ATM transactions has been and continues to be illegal,” the complaint states, adding that the practice is just one more illegal activity in Wells Fargo’s “long and documented history of troubling disclosure of its overdraft practices.”

The lawsuit, which alleges violations of California’s Unfair Competition Law, seeks the return of all improperly charged overdraft fees within the statute of limitations period and looks to stop Wells Fargo from continuing the practice.

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