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Court rules Wells Fargo practice of transaction reordering “federally authorized”

wellsfargoA U.S. appeals court recently overturned a lower court ruling ordering Wells Fargo to refund California customers $203 million for posting customers’ same-day debit transactions from the highest to lowest amounts.

The court said that the bank’s use of the practice is “a federally authorized pricing decision,” LowCards.com reports.

In 2007, customers filed a class-action suit against Wells Fargo, maintaining that the bank manipulated customers’ purchases and cash withdrawals, posting the biggest transactions first rather than chronologically, in order to cause the account to incur a larger number of overdraft fees.

A circuit appeals court overturned the ruling that prohibited Wells Fargo from using the practice, as well as an order requiring the bank to pay $203 million in customer refunds, saying that federal regulations allow for such a practice. The court, however, did rule that Wells Fargo misled customers about ordering practices, according to LowCards.com.

The CFPB launched an inquiry earlier this year into the posting practices of banks across the nation.

“Because of transaction ordering, along with the vagaries of funds availability and the settlement of various types of debits, consumers may not know when they have reached the limit of their available funds,” CFPB Director Richard Cordray said, Forbes reports. “Therefore, it is easy for them to withdraw their accounts inadvertently. We have heard many stories about the $40 cup of coffee: a man swipes a debit card at his local coffee shop, and unbeknownst to him, his balance is too low to cover the cost. Rather than the card being declined (with the result that he either pays in cash or goes uncaffeinated), the small transaction is processed—along with a $35 overdraft fee.”

The case will return to the district court, which could order the bank to again pay out refunds to customers.

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