Court: Wells Fargo Misled Customers About Debit Card Transactions But Doesn’t Have To Pay Back $203 Million (Yet)

It was a good news/bad news day at the Ninth U.S. Circuit Court of Appeals yesterday, as the court set aside a $203 million judgement against Wells Fargo for the way it processed debit card transactions, but kept the door open to hope that consumers might see some of that money.

The bank was appealing a 2010 U.S. District Court ruling that Wells Fargo’s method of processing multiple debit card transactions — entering the largest one first, thereby increasing the likelihood of overdrafting and then reaping overdraft fees of up to $35 for each subsequent debit — had violated California laws against unfair business practices.

“[G]ouging and profiteering were Wells Fargo’s true motivations behind the high-to-low switch and the allied practices that soon followed,” wrote the judge at the time.

The $203 million was to be paid out to Wells Fargo customers who had been hit with overdraft fees between Nov. 2004 and June 2008.

However, the Appeals Court ruled yesterday that this so-called “stacking” of debit card transactions is currently allowed by federal law and the state can’t override the laws for a national banking institution.

“The federal court cannot mandate the order in which Wells Fargo posts its transactions,” wrote Judge Margaret McKeown in the panel’s unanimous ruling.

On the positive side for California consumers, the appeals panel upheld the lower court’s decision that Wells Fargo had used “misleading propaganda” to deceive customers into believing their transactions were being processed in the order in which they were made.

So even though the court set aside the $203 million judgement, it did say that the District Court judge could order Wells Fargo to pay an unspecified amount of restitution to reimburse customers who were deceived by Wells Fargo’s marketing.

A rep for Wells Fargo tells the San Francisco Chronicle that the bank was “pleased with the decision that largely reaffirms Wells Fargo’s position and vacates the monetary award against us.”

The bank says that multiple debit card transactions are now processed with the smallest amount going first.