text: A San Francisco judge's scathing ruling ordering Wells Fargo to pay its customers $203 million for manipulating debit transactions to maximize overdraft fees might be just the start of troubles for the bank. 
   
   U.S. District Judge William Alsup's 90-page opinion Tuesday described Wells Fargo's motive as profiteering and said the San Francisco-based bank's goal was to "maximize the number of overdrafts and squeeze as much as possible" out of customers. 
   
   But the hefty tab represents only what Wells owes its California customers. That figure is far smaller than the potential bill from a separate suit in which Wells' clients in other states have accused the bank of the same unfair practices. 
   
   That case, consolidated in federal court in Miami, includes similar claims against 30 other lending institutions, including Bank of America, Citibank, Chase, Union Bank and U.S. Bank. 
   
   The crux of the claims is that the banks processed debit transactions from the largest to the smallest, instead of the order in which they occurred, depleting accounts faster and boosting the number of overdrafts, which cost as much as $35 per transaction. 
   
   Billions in overdraft fees 
   
   Wells Fargo garnered more than $1.4 billion in overdraft fees just in California from 2005 to 2007, according to court documents. Nationwide, banks and credit unions collected almost $24 billion in overdraft fees in 2008, according to the Center for Responsible Lending. 
   
   Wells Fargo, which continues to follow the "high-low" practice that it has had in place since 1998, said it would appeal Alsup's decision. Wells representatives declined to forecast what the ruling might mean in the Florida matter, other than to say that the California order was not in line with the facts and that the bank's transactions have been "consistent with the laws and rules of governing regulatory authorities." 
   
   "We have found that high-low gives priority to larger payments and have found that those are the customers' priority payments ... it gives priority to larger transactions," said Richele Messick, spokeswoman for Wells Fargo. 
   
   Messick said that many transactions are received by the bank in a random order without a time stamp, and therefore, the bank needed to determine an order in which to process them. 
   
   Effect on other case 
   
   Richard Heimann, lead attorney for the Wells Fargo customers in California, also is representing plaintiffs in the class-action lawsuit in Florida. 
   
   Heimann said Alsup's order could affect the outcome of that case, even though the judge there is not legally bound to follow it. 
   
   "The decision may very well be influential because it was based on a well-regarded justice's review of a full evidentiary record," Heimann said. "There's no doubt that the defendants' lawyers had been waiting to see the outcome of (the California) case and will be concerned about what it will portend for the case in Florida." 
   
   Heimann noted that representatives from several banks named in the Florida suit sat in on the California court proceedings. 
   
   The Florida action is not scheduled to go to trial until the fall of 2011, but its timeline is not affected by Wells Fargo's appeal of Alsup's decision. 
   
   As part of his ruling Tuesday, Alsup also found that Wells' improper debit processing was exacerbated by the murky manner in which it explained the practice to customers. 
   
   "In shaping the reasonable expectations of its customers, the bank should have prominently disclosed its high-to-low scheme ...," Alsup wrote. "`````````````The bank's 'disclosures' on posting order, however, were buried 20-or-so pages into a 60-plus-page document of single-spaced, ten-point font text." 
   
   He proceeded to say that Wells' internal documents showed that the bank's practices were intentional and meant to generate profit. 
   
   New regulations 
   
   Alsup's decision comes just as new federal regulations are set to kick in. They will require banks to obtain customers' permission to provide overdraft protection. 
   
   Historically, most banks have automatically provided the service, unless customers opt out. Now, customers who do not agree to the service - and its fees - won't be able to make purchases if they do not have sufficient funds. 
   
   This article appeared on page A - 1 of the San Francisco Chronicle ||||| A federal judge in California ordered Wells Fargo & Co. to change what he called "unfair and deceptive business practices" that led customers into paying multiple overdraft fees, and to pay $203 million back to customers. 
   
   In a decision handed down late Tuesday, U.S. District Judge William Alsup accused Wells Fargo of "profiteering" by changing its policies to process checks, debit card transactions and bill payments from the highest dollar amount to the lowest, rather than in the order the transactions took place. That helped drain customer bank accounts faster and drive up overdraft fees, a policy Alsup referred to as "gouging and profiteering." 
   
   Wells Fargo adopted the policies beginning in 2001, and they became widespread across the banking industry. It is unclear how the ruling would apply to the rest of the industry. 
   
   The ruling detailed the experiences of two Wells Fargo customers who used their debit cards for multiple small purchases, and were then charged hundreds in overdraft fees because the order the purchases were cleared by the bank depended on the amounts. The judge found the customers, who were part of a class action, were not properly informed of the bank's policies on processing payments and were unaware the bank would allow debit purchases to go through when their accounts were overdrawn. 
   
   "Internal bank memos and e-mails leave no doubt that, overdraft revenue being a big profit center, the bank's dominant, indeed sole, motive was to maximize the number of overdrafts," Alsup wrote. That policy would "squeeze as much as possible" from customers with overdrafts, in particular from the 4 percent of customers who paid what he called "a whopping 40 percent of its total overdraft and returned-item revenue." 
   
   The judge dismissed Wells Fargo's arguments that customers wanted and benefited from the policies, and detailed evidence he said showed efforts to obscure the practices in statements and other materials. Wells Fargo's online banking system, for example, would display pending purchases in chronological order, "leading customers to believe that the processing would take place in that order." 
   
   "The supposed net benefit of high-to-low resequencing is utterly speculative," he wrote. "Its bone-crushing multiplication of additional overdraft penalties, however, is categorically assured." 
   
   Alsup also criticized the bank for allowing overdraft purchases after accounts had been drained by offering a "shadow line of credit" that customers were unaware existed. 
   
   The decision noted that the Federal Reserve has outlawed some of the practices detailed in the case, most notably debit card overdrafts permitted without customers agreeing to accept overdraft protection. 
   
   Judge Alsup ordered Wells Fargo to stop posting transactions in high-to-low order by Nov. 30 and to reverse overdraft fees charged to customers from Nov. 15, 2004, to June 30, 2008, as a result of the policy. A study cited in the decision by a Wells Fargo witness put the restitution at "close to $203 million." 
   
   Wells Fargo spokeswoman Richele Messick said the bank is "disappointed" with the ruling. "We don't believe the ruling is in line with the facts of this case and we plan to appeal," she said. 
   
   Messick noted that Wells Fargo changed its policies earlier this year, and customers can no longer incur more than four overdraft charges in one day. 
   
   Wells Fargo shares closed Wednesday trading down $1.47, or 5.3 percent, at $26.30, as the broader markets dropped sharply on economic concerns, with banks being particularly hard hit. 
   
   The case, heard in the U.S. District Court for Northern California, is Gutierrez vs. Wells Fargo. 
   
   (This version CORRECTS Corrects spelling of spokeswoman's name to Richele sted Rochele.)
target: – Wells Fargo is guilty of gouging and profiteering and needs to return $203 million in overdraft fees to customers, a San Francisco judge ruled yesterday. The bank's practice of processing transactions from the largest to the smallest instead of in the order in which they occurred is clearly designed to maximize the number of overdrafts and "squeeze as much as possible" out of customers, the judge wrote in his sternly worded decision. The judge ordered the bank to change its "unfair and deceptive" practices, which in some cases caused customers to be charged 10 $35 overdraft fees for going just a few dollars over the limit, the AP reports. Wells Fargo says it is disappointed by the decision and plans to appeal. If the decision stands, it could be just the tip of a very costly iceberg for Wells Fargo, the San Francisco Chronicle notes. The $203M million only applies to California customers, and a similar class-action suit representing customers in other states will go to trial next year.