Friday, August 12, 2005

Wells Fargo & Co: Improper Credit Card Processing Fees Settlement (LA Times)

Wells Fargo Suit Over Card Processing Fees (LA Times, August 12, 2005)

[Although specifically unrelated to the antitrust credit card interchange litigation, this news item speaks volumes about unbridled fees imposed by banks on merchants; editor - See related story - Click here for Market Watch story]

From the LA Times: Wells Fargo Settles Suit Over Card Processing Fees By E. Scott Reckard Times Staff WriterAugust 12, 2005:

Wells Fargo & Co. agreed Thursday to pay as much as $34 million to settle allegations that it imposed improper credit card processing charges on about 96,000 California businesses over a four-year period.

The settlement by the San Francisco bank amounts to a partial return of what the plaintiffs contended were "junk fees" that were never properly disclosed beforehand and never explained when the merchants called to ask about them. The disputed charges included extra fees charged by the bank when merchants had to punch in a credit card number by hand, said Howard M. Jaffe, a Los Angeles lawyer representing the businesses. "If a merchant failed to swipe the card, couldn't get the machine to read it and just manually input the numbers, they'd get dinged usually by a modest amount, but it added up to millions and millions of dollars," he said.

Jaffe said other fees were charged for such things as submitting paperwork late and failing to provide an address for the customer when asked to do so as a confirmation of identity. Some agreements between Wells Fargo and the merchants mentioned only the basic charge for processing transactions, Jaffe said. Others "made vague references saying that's the rate that would apply if you jumped through all the hoops, without saying what the hoops were," he said.

In a statement, Wells Fargo said it "has always made full disclosures to merchants" about its billing practices. Spokeswoman Mary Trigg said the bank wouldn't discuss how those disclosures were made. "The settlement allows us to focus on providing great service to our customers while meeting all of their credit card and debit card processing needs," the bank statement concluded. In the settlement approved Thursday by Los Angeles County Superior Court Judge Anthony Mohr, Wells Fargo agreed to pay at least $19 million and as much as $34 million to settle the claims, covering charges made from March 1999 through March 2003.

The bank will repay 29% of the charges made early in that period, 19% of those in the middle, and 10% of the charges at the end, when disclosures had improved, Jaffe said. If eligible businesses fail to file for their share of the settlement, the money will go to businesses that do file claims. That is likely to raise the average distribution from the $300 range to perhaps double that, because it's typical for only half of those eligible to file claims in class actions when individual payments are relatively small, said attorney Niall McCarthy of Burlingame, Calif., another lawyer for the plaintiffs.

The lawsuit named four small businesses as plaintiffs, but the settlement was certified as a class action that applied to about 96,000 California business customers of Wells Fargo. Some large retailers such as the Ralphs and Safeway supermarket chains dropped out of the case because they were pursuing damages in a separate lawsuit in Connecticut that alleged broader antitrust violations by credit card companies, McCarthy said.

Jaffe filed the class-action case in March 2003 after winning an undisclosed settlement from the bank on behalf of a small chain of Los Angeles auto repair shops. That suit contended not only that the auto shops were charged fees that were not properly disclosed but also that Wells Fargo intentionally issued confusing statements, repeatedly changing the names of the fees, and that the bank refused to provide explanations for them despite repeated requests. Vincent Archer, who manages the shops, said he had a sound deal with another processor that didn't apply extra fees. Wells Fargo promised to match that deal if the company switched to its processing services, "but later that year I started noticing the extra fees," he said.

After a few months, Archer said, he contacted Wells Fargo and asked for a written explanation of "a whole array of these charges. And they would not give me an answer."The extra fees, which ran as high as $75 per transaction, roughly doubled the auto shops' cost of accepting credit cards, Archer said. He said that after years of go-rounds he wrote a formal letter of protest to Wells Fargo's legal department, after which the fees were reduced but no explanation was offered. The shops now use another credit card processor that charges about the same basic rate and far fewer extra fees, he said.