DES MOINES, Iowa – Bank customers fighting high overdraft fees got a boost on Tuesday with a win in federal court in California against Wells Fargo & Co., but that case has limited legal impact.

A similar federal court case filed in Florida against 30 banks including Wells Fargo, Bank of America, Citibank and others could mean much more.

At issue is the practice of banks processing debit payments according to their size, from largest to smallest, rather than by the timing of which transaction came first. This drains customer bank accounts faster, causing them to pay more overdraft fees.

In the California decision, U.S. District Judge William Alsup accused Wells Fargo of “profiteering” by changing its policies to process checks, debit card transactions and bill payments from the highest dollar amount to the lowest. He referred to the practice as “gouging and profiteering.”

Alsup ordered Wells Fargo to stop posting transactions in high-to-low order by Nov. 30 and to reverse overdraft fees charged to customers over a period of several years. The cost to the bank is estimated at about $203 million.

Wells Fargo spokeswoman Richele Messick said the bank will appeal the ruling.

Alsup’s ruling won’t have sweeping legal implications because it was limited to a group of Wells Fargo customers in California, said Charles Delbaum, a senior staff attorney for the National Consumer Law Center.

The case in Florida, however, making similar allegations against 30 banks from plaintiffs in 14 states, will have more impact if it’s successful. It recently passed a major hurdle when the judge denied a motion to dismiss by the banks. The case is proceeding toward arguments to determine whether class-action status will be granted.

Consumer advocates say the practice of processing payments in a way that causes more overdrafts is common.

“It’s absolutely widespread and the thing that’s so horrible about it is that bank regulators have known about it for years and turned the other way,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer advocacy group.

Consumers typically pay a fee of $35, though the average overdraft is only $20, she said.

That means banks are essentially charging a huge interest rate for covering small amounts of money for a very short period of time, often only a few days.


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