By Numerian posted by Michael Collins

We’ve often talked here about the bank practice of extracting equity from customer accounts. Now comes a 90 page ruling from Judge William Alsup of the Northern District of California against Wells Fargo Bank, showing in detail exactly how the bank engaged in “gouging and profiteering” when it managed customer checking accounts. Nor is this one of those polite judicial rulings where the judge waits to the end to conclude whether or nor the defendant engaged in bad behavior. Judge Alsup is biting and nasty throughout his ruling, barely able to hold his disgust at what he concluded was a deliberate attempt by Wells Fargo to profit off a system that trapped customers into overdraft hell.

How the System Was Rigged to Create Overdrafts

Prior to 2000, Wells Fargo did its best to minimize overdrafts in customer accounts. Its computers processed all credits to the account first, followed by ATM withdrawals and debit card purchases, followed by checks and then Automated Clearing House transactions (the ACH is used by banks to process debits such as PayPal charges or monthly mortgage or rental payments where the customer has agreed to an automatic debit). In every step, Wells Fargo used low to high sequencing; the smallest debits would go first and the largest would go last. This entire process mimicked the way the consumer managed their account using a traditional checking account balance, which ranks all transactions in chronological order. When an overdraft occurred on the bank’s records, the consumer would have known had they been keeping their checkbook balance up to date.

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