Wells Fargo Loses Bid to Force Arbitration on Overdrafts

Wells Fargo & Co. (WFC), the biggest U.S. home lender, lost a bid to force the arbitration of customer disputes about overdraft fees.

The bank can’t force arbitration after twice waiving its right to do so, the U.S. Appeals Court based in Atlanta ruled today, denying the bank’s motion to dismiss a class-action lawsuit.

The court found that the bank put the customers through a litigation process that lasted years and yielded about 900,000 documents before asserting its right to force the customers to arbitrate their dispute.

“We’re disappointed with the ruling,” Richele Messick, a Wells Fargo spokeswoman, said in an e-mailed statement. The company will continue to defend its position in the litigation, she said.

Customers have sued more than 30 banks claiming they reordered overdrafts to maximize fees. Bank of America Corp. agreed to pay $410 million last year to settle customer claims and JPMorgan Chase & Co. (JPM) reached a preliminary agreement in February to pay $110 million to resolve a lawsuit. A suit against other banks is pending in federal court in Miami.

Wells Fargo, based in San Francisco, declined a trial court’s offer to arbitrate the disputes in November 2009 and April 2010. The company filed a motion to dismiss five proposed class-action, or group, lawsuits two days after the Supreme Court ruled in April that federal law allows companies to compel customers and employees to arbitrate claims individually, trumping state laws that may bar such provisions.

‘Substantial Prejudice’

Before the Supreme Court ruling, laws in some states made arbitration provisions that contained class-action waivers unenforceable, the bank said.

Wells Fargo acted “inconsistently” with the arbitration right, the appeals court said.

“If we were to compel arbitration, the plaintiffs would suffer substantial prejudice,” the court said.

The appeals case is Garcia v. Wachovia, 11-16029, U.S. Court of Appeals for the Eleventh Circuit. The trial court case is In Re Checking Account Overdraft Litigation, 09-md-02036, U.S. District Court, Southern District of Florida (Miami)

To contact the reporter on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net