Bank of America's Merrill Lynch unit has agreed to pay $39 million to resolve a class-action lawsuit brought by brokerage customers who claimed they received near-zero interest rates on idle cash held in their retirement accounts. The settlement, filed late Wednesday in Manhattan federal court, requires approval from US District Judge Valerie Caproni. This agreement averts a trial that had been scheduled for mid-October.
The lawsuit centered on allegations that Merrill Lynch breached its client agreements with holders of Merrill Edge online accounts. These customers, whose accounts were active between December 15, 2016, and March 15, 2020, accused the firm of automatically sweeping cash balances into deposit accounts that paid less than a "reasonable rate" of interest. The complaint specifically stated that the sweep accounts offered annual yields ranging from 0.05% to 0.14%. In contrast, the complaint highlighted that other brokerages were paying customers approximately 2% interest on similar cash balances during the period in question.
Merrill Lynch, a unit of Bank of America, denied any wrongdoing as part of the settlement agreement. When approached for comment, a spokesperson for Bank of America declined to provide a statement regarding the settlement. Lawyers representing the brokerage customers in the class action did not immediately respond to requests for comment on the matter.
The legal action against Merrill Lynch is part of a broader trend of lawsuits targeting large banks and brokerages concerning low-yielding sweep accounts. These claims have become particularly prevalent in 2023 and 2024, as customers increasingly argue that the interest rates offered on these accounts have not kept pace with rising market interest rates. The success of these various lawsuits has been mixed across different cases.
In a related development earlier this year, another federal judge in Manhattan ruled in February that JPMorgan Chase must face a portion of a similar lawsuit regarding its sweep accounts. More recently, on September 18, a separate federal judge in Manhattan granted final approval to a $70 million settlement reached with Oppenheimer & Co. in another case involving comparable claims. These ongoing legal challenges underscore the scrutiny financial institutions are facing over how they manage uninvested cash in customer accounts.