A settlement has been reached in a class action lawsuit filed against Bank of America’s Merrill Lynch by customers who alleged they were shortchanged by the bank’s cash sweep practices, AdvisorHub reported.
Under the settlement filed in federal court in Manhattan, Merrill Lynch will pay $39 million over claims that it paid brokerage customers near-zero interest rates instead of market rates on idle cash in their retirement accounts.
The lawsuit, filed in 2018 and led by named plaintiff Sarah Valelly, was brought by customers who had retirement accounts in the largely self-directed Merrill Edge unit between December 2016 and March 2020.
The suit claimed that Merrill automatically directed online Merrill Edge customers’ cash into low-yield sweep accounts earning just 0.05% to 0.14% annual percentage yield without securing proper consent or providing clear disclosures. Competing brokerages were offering market rates around 2% APY, the suit added. The firm’s customer agreement promised no less than a “reasonable rate” of interest.
The complaint also alleged that Merrill advisors inappropriately steered clients toward low-interest Bank of America accounts, resulting in substantial financial losses. The complaint alleges federal Securities and Exchange Commission regulations require brokerage firms to obtain a customer’s prior written affirmative consent before sweeping cash into affiliated accounts or entities.
The plaintiffs calculated the total class damages they had suffered at $68.6 million, by calculating the monthly difference between the actual interest rates paid, and reasonable market rates applied to each member’s cash balance. The proposed settlement amounting to nearly 57% of that total.
A final approval hearing for the settlement is scheduled for early 2027.
Merrill Lynch did not admit to the allegations, with the settlement reflecting a compromise without any admission of liability, fault, or wrongdoing.
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