Wells Fargo Cash Sweep Program Benefits Company at Accountholders’ Expense, Class Action Suit Alleges

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A proposed class action lawsuit claims Wells Fargo has breached its contractual duties to clients by “sweeping” customer cash deposits into interest-bearing accounts that pay unreasonably low interest rates.

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The 24-page Wells Fargo lawsuit relays that in a typical cash sweep program, a customer’s uninvested cash from their brokerage account is automatically moved into an interest-bearing account, where it can generate returns for the accountholder over time. However, the case alleges that rather than pay its clients a reasonable rate of interest on their cash deposits, Wells Fargo has instead negotiated “miniscule” rates for its customers and quietly reaped hundreds of millions in returns on their cash thanks to rising interest rates.

The class action suit contends that Wells Fargo & Company, Wells Fargo Bank and Wells Fargo Clearing Services, LLC—which does business as Wells Fargo Advisors—have turned a tidy profit at customers’ expense despite legal and contractual obligations to act in their best interests.

“Rising interest rates presented an opportunity for Wells Fargo customers to earn more on their cash sweep account balances,” the complaint says. “By improperly keeping the interest rates paid on cash sweep accounts low, Wells Fargo usurped that opportunity for itself, leveraging its own clients’ cash for its own benefit and earning near-guaranteed outsize [sic] returns year after year.”

Under Wells Fargo’s two cash sweep programs, customers’ deposits are moved to banks that are either affiliated or unaffiliated with the company, depending on the program, the filing shares. Importantly, the lawsuit asserts, interest rates paid to clients are determined by the rates charged at the Wells Fargo-affiliated banks.

In fact, defendant Wells Fargo Advisors instructs unaffiliated banks participating in a cash sweep program to credit interest on customers’ deposits at the same rate as affiliated banks, the suit claims.

“Under this regime, if unaffiliated banks are paying their non-Wells Fargo customers a higher interest rate than the affiliated banks, Wells Fargo Advisors will direct the unaffiliated banks to pay Wells Fargo customers the lower rate that is paid by Wells Fargo-affiliated banks,” the case charges.

Indeed, despite Wells Fargo’s explicit promises to afford clients a “reasonable” rate of interest on their cash sweep account balances, the defendant currently pays customers only 0.02-percent interest on their deposits, the complaint alleges. The filing claims that since 2014, clients with up to $999,999 in assets at Wells Fargo were paid only as much as 0.15 percent and as little as 0.01 percent, “drastically lower” than the federal funds rate—5.33 percent as of August 2024—and the rates negotiated by other financial institutions with cash sweep programs.

“There is nothing ‘reasonable’ or ‘fair’ about those rates, or about Wells Fargo using its clients’ cash balances to reap windfall profits at these disproportionate spreads,” the case argues.

The lawsuit against Wells Fargo adds that the company is currently facing an investigation by the U.S. Securities and Exchange Commission with respect to its cash sweep program practices and “related misconduct.”

The suit looks to represent any retail clients of Wells Fargo who had cash deposits in its cash sweep program.

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