Troubles are not yet over for Wells Fargo & Company (WFC - Free Report) . A federal lawsuit has been filed against the company’s joint venture with payment processor First Data Corp (FDC - Free Report) , accusing it of misleading thousands of merchants by charging them unauthorized fees. The news was first reported by Reuters.
The venture, known as Wells Fargo Merchant Services was formed to help small businesses and other merchants across the country to process their credit and debit card transactions. It had promised to provide a transparent pricing policy to the merchants.
However, per the lawsuit filed in Brooklyn on Friday, on behalf of Patti's Pitas, a now closed restaurant in Pennsylvania, tour operator Queen City Tours in Charlotte, NC, and other merchants, the venture had not been living up to its promises.
It was overbilling merchants for its services and had been charging them with unanticipated fees which they were claiming to be "interchange charges." The venture claimed that the fee was being charged by some credit card network, but actually it was they who were making profit out of the same.
Also, Wells Fargo framed a 63-page contract which had to be signed by the merchants. The contract was quite complicated and beyond the capacity of merchants to understand. Upon signing, the merchants were hit by some unauthorized monthly charges.
Sara Hassell, a Wells Fargo spokeswoman, said, "We deny the claims and plan to defend against the misrepresentations outlined in the lawsuit." On the contrary, Mark Murphy, the spokesman for First Data did not comment.
This is not the first time Wells Fargo has faced legal action for misleading sales tactics. The company is already struggling with a nationwide lawsuit filed against its employees for unfair cross-selling practices by opening unauthorized accounts.
Last year, it agreed to pay $185 million to the U.S. government to settle such claims.
In the last one year, shares of the company have gained only 7.4%, underperforming the 35.6% rally for the industry it belongs to.
Currently, Wells Fargo carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the finance space are Carolina Financial Corporation (CARO - Free Report) and The Bank of New York Mellon Corporation (BK - Free Report) .
Carolina Financial witnessed an upward earnings estimate revision of 4.5% for the current year, over the last 60 days. Its share price has increased 64.6% in the last one year. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BNY Mellon carries a Zacks Rank #2 (Buy). For the current year, its Zacks Consensus Estimate was revised 1.4% upward in the last 60 days. The company’s share price has increased 33.3% in the last one year.
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