The banks win again

The Ninth Circuit Court of Appeals has handed Wells Fargo and other national banks another pile of our money. Veronica Gutierrez sued Wells Fargo for its “high to low” posting system. Under that system, the bank does not post your checks and debit-card purchases to your account immediately as they come in. Instead, it waits until the end of the day and posts the largest first, then the next largest, and so forth until it posts the smallest last.

For example, say you have $100.00 in your account, and checks and debits of $30, $20, and $75 come in. If the bank posted them in that order, the bank could charge you an overdraft fee only for the $75 debit. But if it posted the $75 debit first, then the $30 debit would cause an overdraft, as would the $20 debit after it. Voilá! The bank has doubled your fees! Sometimes banks can turn a small overdraft into several hundred dollars in profit.

Ms. Gutierrez brought a class action lawsuit against Wells Fargo claiming that the high-to-low system violated California’s law against unfair trade practices. A federal district court agreed and ordered Wells Fargo not just to stop but to repay $203 million in overdraft fees. But the Court of Appeals reversed.

The court reasoned that Congress gave national banks the right to receive deposits along with any “incidental powers” necessary to banking. Those incidental powers necessary to banking include gouging customers. A state law prohibiting the banks from doing that would interfere with what Congress has wrought. (The court did go on to say that Wells Fargo still can’t lie about it.)

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