Wells Fargo now faces a major lawsuit for cheating customers, after it underpaid clients to ‘enrich itself’ at the expense of others.
A class-action lawsuit filed on Tuesday accuses Wells Fargo of underpaying interest to clients participating in its cash sweep program, claiming the bank benefitted at the expense of its customers.
The lawsuit, brought by plaintiff Darren Cobb in the U.S. District Court for the Northern District of California, alleges that Wells Fargo breached its fiduciary duty, acted unfairly, violated contractual obligations, and engaged in unjust enrichment.
Cobb asserts that the bank undercompensated its customers in violation of its responsibilities, thereby enriching itself.
According to the complaint, Wells Fargo failed to provide a reasonable interest rate on customer cash, instead offering minimal rates while profiting significantly from rising interest rates.
The lawsuit highlights that customers in the cash sweep program received only 0.15% interest throughout much of 2023, despite short-term U.S. Treasury Bills yielding around 5.25%, creating a substantial disparity.
The complaint also notes that some account holders received just 0.02% on their cash balances.
In a typical cash sweep program, a brokerage moves uninvested cash from accounts into interest-bearing accounts.
The lawsuit claims Wells Fargo uses these funds to generate significant profits by earning more interest than it pays to clients.
It contrasts Wells Fargo’s practices with those of Fidelity, which reportedly transfers uninvested cash into a money market fund earning approximately 5%.
Wells Fargo declined to comment on the lawsuit, which follows a previous legal action filed last month by a wealth management client.
The bank has faced regulatory scrutiny for its interest rate practices in cash sweep accounts.
Last fall, it revealed that the Securities and Exchange Commission (SEC) was examining its cash sweep options for advisory clients.
In July, during an earnings call, Wells Fargo announced plans to raise interest rates in its cash sweep program, a change expected to reduce the bank’s earnings by around $350 million annually, aimed at aligning rates more closely with those offered in money market funds.
The recent quarterly report from Wells Fargo disclosed details about the SEC investigation, indicating that discussions regarding potential resolutions are ongoing.
The bank is not alone in facing scrutiny; other financial institutions, including Morgan Stanley and LPL Financial, have also encountered class-action lawsuits related to their cash sweep policies.
This new lawsuit seeks damages for the plaintiff and other affected customers, including restitution and the return of profits earned by Wells Fargo, along with prejudgment interest, attorney fees, and additional relief.
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Also Read: TD Bank CEO Is Now Retiring Following Money Laundering Investigation
Other US Bank News Today
US banks now hold 7x more unrealized losses than during the 2008 financial crisis, according to fresh data from the FDIC.
The FDIC reported that unrealized losses on securities totaled a whopping $516.5 billion, which was an increase of $38.9 billion from the previous quarter.
This increase was largely due to higher losses on residential mortgage-backed securities, which were affected by rising mortgage rates, per the report.
FDIC-insured institutions reported a net loss of $32.1 billion in the fourth quarter of 2008 ($12.1 billion during the 1st) — demonstrating just how overleveraged institutions have gotten today.
The banking industry also reported total assets of $24.0 trillion in the first quarter 2024, an increase of $291.2 billion (1.2 percent) from fourth quarter 2023.
The quarterly increase was mainly due to higher balances in trading accounts (up $176.1 billion, or 23.2 percent), cash and balances due from depository institutions (up $79.0 billion, or 2.8 percent), and securities (up $39.9 billion, or 0.7 percent).
Alarmingly, the number of banks on the FDIC’s “Problem Bank List” increased from 52 to 63.
Total assets held by problem banks also rose $15.8 billion to $82.1 billion.
Problem banks represent 1.4 percent of total banks, which is within the normal range for non-crisis periods of 1 to 2 percent of all banks, per the FDIC.
However, the growing number of problem banks and unrealized losses points towards a shaky financial system.
In 2008, the economic consequences forced people to foreclose their homes, jobs were lost, and retirement savings were completely wiped out.
The social implications the collapse created put families on the street and triggered severe community strain.
The crisis affected economies worldwide, leading to global slowdowns and increased economic inequality in many regions.
Industry experts such as Robert Kiyosaki and Grant Cardone have warned that the people are going to experience a system crash unlike anything ever seen before.
But I’m curious to know what you think — leave your thoughts below.
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Also Read: Wells Fargo Is Now Accused of Overcharging Customers in Lawsuit
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