Gutierrez v. Wells Fargo

Wells Fargo Bank is not entitled to demand arbitration on appeal for a customer class action suit challenging the bank’s high-to-low debit card posting scheme under California’s Unfair Competition Law as “unfair” and “fraudulent.” National banking laws preempt California state law regarding the unfairness of a bank's posting scheme, but not any fraudulent misrepresentations made about it to customers.

California customers of Wells Fargo brought a class action suit against the bank alleging that its practice of high-to-low posting of debit card transactions violates California’s Unfair Competition Law (“UCL”). High-to-low posting maximizes overdraft fees by posting customers’ debit card transactions for the larger amounts first; overdraft fees are applied pursuant to the number of transactions and not by the overall dollar amount of the overdraft. The district court held that Wells Fargo’s practices violated the “unfair” and “fraudulent” prongs of the UCL and ordered an injunction on high-to-low posting and $203 million in restitution. Wells Fargo appealed asserting, among other claims, that the court should compel arbitration pursuant to the Wells Fargo Customer Account Agreement. The Ninth Circuit held that despite the U.S. Supreme Court’s decision in Concepcion, ordering arbitration at this point, post-appeal and coupled with Wells Fargo’s late demand for arbitration would be extremely prejudicial to plaintiffs. Further, the Court vacated the district court’s injunction and restitution order because it reasoned that a good faith limitation on a bank’s posting order for debit card transactions imposed by the UCL is preempted by federal banking laws which allow banks to choose their posting scheme. However, the Ninth Circuit held that federal laws do not preempt UCL’s prohibition on misleading or fraudulent statements regarding a posting scheme and the district court could consider on remand the issue of whether an injunction and restitution is warranted on the fraudulent basis prong. REVERSED in part, AFFIRMED in part, and REMANDED for further proceedings.