Wells Fargo's scandals just won’t die

from Yahoo! Finance -

by Bethany McLean

The thing about scandals in the Information Age is that they just won’t die. Look no further than Wells Fargo (WFC).

It’s almost a year after the bombshell announcement that Wells would pay $185 million to settle charges that it opened unauthorized accounts for customers, among other things. Now, there’s a new CFPB investigation and a wave of lawsuits over Wells’s mortgage practices. Last week, Elizabeth Warren sent a letter to the Federal Reserve with an unprecedented demand that the Fed seek the removal of Wells Fargo’s board of directors.

That’s not all. Lurking in the background is a largely forgotten lawsuit involving Wells’ overdraft practices. No wonder it’s been forgotten: The case has been tied up in torturous litigation for almost a decade. But the ultimate resolution could make the $185 million look like a small down payment for years of aggressive business practices.

Banks making big money off overdraft charges

Way back when, banks used to cover overdrafts without charging their customers. But starting in the early 1990s, banks began to figure out that this could be a rich source of fees. A 2008 FDIC report said that overdraft fees for debit cards could carry effective annualized interest rate exceeding 3500%.

And then banks figured out that overdraft charges could be even more lucrative if they were reordered. Instead of having them hit a customer’s account in the most straightforward way—chronologically—the banks could reorder them from largest to smallest in order to maximize the damage to their customers. So if you had $100 in your bank account, and you had a $5 cup of coffee, a $10 sandwich, a $50 gas bill, and a $175 grocery bill, in that order, you should pay one $35 overdraft fee. But if the bank reorders the charges to put the grocery bill first, they could collect three fees, or $105.

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