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Wells Fargo ordered to pay $203 million in overdraft case

The logo for Wells Fargo bank is pictured in downtown Los Angeles, California July 17, 2012. REUTERS/Fred Prouser
The logo for Wells Fargo bank is pictured in downtown Los Angeles, California July 17, 2012. REUTERS/Fred Prouser

By Jonathan Stempel

(Reuters) - A federal judge has again ordered Wells Fargo & Co to pay $203 million to settle class action litigation accusing it of imposing excessive overdraft fees on checking account customers, reviving an award that had been thrown out last year.

U.S. District Judge William Alsup reinstated on Tuesday a penalty he first imposed in August 2010, saying the fourth-largest U.S. bank violated a California law that protects consumers against fraudulent misrepresentations.

"Wells Fargo was profiting off its most vulnerable customers and this holds the bank accountable," Richard McCune, a partner at McCuneWright in Redlands, California, representing about 1 million current and former Wells Fargo customers in that state, said in an interview. "We think it's the right decision."

Richele Messick, a Wells Fargo spokeswoman, said the San Francisco-based bank plans to appeal.

"We don't believe that the ruling is in line with facts of this case or the law," she said.

The lawsuit is separate from nationwide litigation still pending in Miami federal court against about 20 lenders, including Wells Fargo, over alleged excessive overdraft fees.

Consumers often incur the roughly $25 or $35 fees when they overdraw their checking accounts through debit card purchases.

Wells Fargo had been accused of maximizing overdraft fees by processing such purchases from the largest to the smallest rather than chronologically since 2001. It has since changed its account posting practices, as have many rivals.

In December, the 9th U.S. Circuit Court of Appeals threw out the original $203 million award, saying federal law preempted part of a California law on which Alsup had relied in imposing an injunction to stop improper fee practices.

But the 9th Circuit said federal law did not displace California consumer law with respect to fraudulent or misleading representations and directed Alsup to review the case again.

AFFIRMATIVELY MISLEADING CUSTOMERS

In reinstating the award, Alsup rejected what he called Wells Fargo's effort to "slice its resequencing scheme" into multiple parts, reducing its overall liability.

The award punishes Wells Fargo "for affirmatively misleading the class as to what (its) practice was, namely engaging in a practice likely to mislead the class to believe that processing would be done in chronological order.

"Because Wells Fargo misrepresented the posting order and overdraft charges to its customers, the appropriate form of restitution is to restore the unexpected charges to Wells Fargo's customers," Alsup added.

The judge also permanently barred Wells Fargo from further misleading customers about the posting of transactions. He said he will consider fees for the customers' lawyers later.

Bank of America Corp paid $410 million and JPMorgan Chase & Co paid $110 million to settle their portions of the nationwide litigation. Those settlements won final court approval in 2011 and 2012, respectively. Both banks have also changed their overdraft fee practices.

The case is Gutierrez et al v. Wells Fargo Bank NA, U.S. District Court, Northern District of California, No. 07-05923.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky and Andre Grenon)

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