The Bank of America-owned brokerage will pay $39 million in the settlement, Reuters reported Wednesday (Sept. 30), citing court documents.
The class action suit accused Merrill of paying brokerage customers near-zero interest rates rather than market rates on idle cash sitting in retirement accounts, the report said. The case had been set to go to trial in the coming weeks.
According to the report, customers who held Merrill Edge online accounts between Dec. 15, 2016 and March 15, 2020 accused the company of violating its client agreements by automatically sweeping cash balances into deposit accounts that paid less than a “reasonable rate” of interest.
The suit said the sweep accounts came with annual yields of 0.05% to 0.14%, while other brokerages were paying their clients roughly 2%. Merrill Lynch denied wrongdoing in agreeing to settle, the Reuters report added.
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The report notes that many big banks and brokerages have faced lawsuits related to low-yielding sweep accounts, particularly in 2023 and 2024 when customers said those accounts were not keeping pace with rising interest rates.
These cases have had mixed success, Reuters added. In February, a federal judge in Manhattan ordered JPMorganChase to face a suit accusing the bank of breaking deposit account agreements by paying near-zero interest rates at a time when the federal funds rate had climbed above 5%.
JPMorgan Chase had wanted to have the lawsuit thrown out, arguing it had followed customers’ “instructions” to deposit their uninvested cash in interest-bearing accounts.
Last year, Merrill Lynch, along with two Wells Fargo advisory firms, agreed to settle Securities and Exchange Commission (SEC) charges that they violated Advisers Act rules connected to their cash sweeps programs.
The commission alleged that the firms failed to take the best interest of clients into account when deciding which cash sweep program options to offer them and did not fulfill the duties of financial advisors in managing client cash in advisory accounts.
The SEC said in its complaint that the banks had set the interest rates offered in their bank deposit sweep programs (BDSPs), and when interest rates increased, the difference between the BDSPs’ yields and those of other cash sweep alternatives rose to near 4% at times.
Merrill said in a statement emailed to PYMNTS at the time that it had begun taking measures to address the issues the SEC had cited before it knew the regulator had opened an investigation.
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