SAN FRANCISCO – Wells Fargo has won a partial victory in its appeal of $203-million overdraft lawsuit, but both sides of the case are gearing up for another round of fighting over the bank’s consumer practices.

The case could have implications for credit unions, too, that have processed checks not in chronological order but from highest to lowest. The issue was the subject of a special report in Credit Union Journal earlier in 2012.

A panel of judges in the U.S. Court of Appeals for the 9th Circuit ruled Wells could not be held liable for manipulating the order in which customers’ debit charges were processed to maximize overdraft fees. The Office of the Comptroller of the Currency had sanctioned Wells’ practices, the panel found, preempting such a challenge under state law.

But the panel upheld a finding that Wells made “fraudulent or misleading representations” about its practices, giving the original judge in the class action a second chance to force Wells to pay restitution.

So-called “high-to-low posting” allows financial institutions to charge more in fees when customers overdraft their accounts. By reordering customers’ daily transactions so the largest purchases are subtracted from consumer checking balances first, Wells and many other banks increased the number of overdrafts charged to a customer within a single day.

Because federal preemption shielded Wells from second-guessing of its posting order, the appeals court panel threw out an order from federal district court in Northern California that Wells return $203 million in overdraft fees to California customers.

The court, however, upheld U.S. District Judge William Alsup’s determination in the case, Gutierrez v. Wells Fargo, that Wells had misled its customers about its practices, potentially allowing him to hit Wells with a similar fine on the second go around.

“On remand, the district court will be in a position to determine whether, subject to the limitations in this opinion, restitution is justified,” the appeals court panel found.

“It is a split decision on the preemption,” said Michael Sobol, an attorney for Lieff Cabraser Heimann & Bernstein, who represents the plaintiffs. “We are confident that, on remand, that the district court will award monetary relief in an amount equal to that which it ruled was applicable to the deceptive trade practices.”


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