Multimillion-Dollar Plan to Settle Bank Fee Suit Is Rejected

A Superior Court judge Tuesday rejected a controversial multimillion-dollar proposal to settle a far-ranging legal challenge to the fees two California banks charge customers for writing bounced checks.

Judge Isabella Horton Grant said she could not approve the proposed settlement because its terms had been sharply expanded in last-minute negotiations to include 21 other bank fees without adequate study of how customers would be affected.

Plaintiffs in the landmark suit, brought against Wells Fargo and Crocker National Bank, contend that fees for processing bad checks have been excessive, rising from $6 when the action was brought in 1977 to $10 now for a service that actually costs banks less than $1 to perform.

The two banks have merged under the control of Wells Fargo and now have nearly 2 million customers.

In addition to bounced-check charges, the proposed settlement covered other fees, including checking account maintenance charges, record research fees, stop-payment charges and money order fees. Suits challenging fees for those services would have been barred for about two years, under the agreement.

The banks had insisted on including the other fees in the settlement, saying that there was an interrelationship among all such fees and that they should be considered as a “bundle of services.”

Judge Grant said she was not convinced that the additional charges to be covered in the settlement had received “adequate analysis” and that it was “unclear” that customers who challenged the fees for bounced checks would benefit from the broader settlement terms.

Attorneys said that new negotiations may be undertaken to try to find a solution acceptable to the judge and the parties in the complex case that could affect up to 4 million present and former bank customers. It is also possible that Grant’s ruling will be appealed or that the case will be allowed to go to trial and then be appealed--a process that could take several years, the attorneys said.

The lawsuits challenging the bounced-check fees were first dismissed in trial court and then reinstated in a landmark ruling by the state Supreme Court in 1985 allowing customers to challenge charges that they could prove were “unconscionable.”

In recent pretrial negotiations, attorneys for the banks and plaintiffs in the cases worked out a settlement that they said would provide over $100 million in benefits and added services to bank customers. Among other things, customers could have received a 30% refund for past bad-check charges and one year’s free service--worth $18--on a credit card with overdraft protection.

But objections quickly arose from consumer advocates, state officials and attorneys for other plaintiffs in the case, who said the settlement would heavily favor the banks. They noted, among other things, that the banks would actually be free to raise to $15 or more the charges they now assess for bad checks.

With other potential challenges to assorted bank fees waiting in the wings, the case has been watched closely by bankers, lawyers and consumer groups.

Stephen D. Kaus, an attorney representing opponents of the settlement, welcomed Grant’s ruling, saying that the agreement would have proved “far too favorable to the banks.”

‘Huge Legal Barriers’

Kaus said the expanded settlement terms would have placed “huge legal barriers” before customers who want to bring suit to challenge fees for other bank services.

On the other side, the ruling was described as a “disappointment” by David B. Baum, the attorney who led the defense of the settlement in several days of hearings before Judge Grant.

“The agreement would have provided enormous benefits to bank customers,” he said. “There’s no decision yet as to which course to take now . . . but it’s been a long road that is going to grow even longer.”

Weyman Lundquist, an attorney for the banks, called the judge’s ruling a “step backward” and minimized the prospect of renewed negotiations. “I think there is a substantial likelihood we will see this case go to trial, but we don’t rule out the possibility of an appeal,” he said.