Bank of America's Merrill Lynch unit will pay $39 million to settle claims that it paid customers near-zero interest rates on idle cash in retirement accounts. The settlement, filed in Manhattan federal court, averts a trial scheduled for mid-October and requires court approval.
The settlement highlights ongoing scrutiny of how brokerages manage customer cash balances and the interest rates they offer, particularly in periods of rising rates, potentially impacting client trust and the profitability of such cash management services.
Bank of America's Merrill Lynch unit has agreed to pay $39 million to settle a class action lawsuit alleging it paid brokerage customers near-zero interest rates on idle cash in their retirement accounts instead of market rates. The settlement papers were filed late on Wednesday in Manhattan federal court and require approval from US District Judge Valerie Caproni, averting a trial scheduled for mid-October.
Holders of Merrill Edge online accounts between December 15, 2016, and March 15, 2020, accused Merrill Lynch of breaching its client agreements. They claimed the firm automatically swept cash balances into deposit accounts that paid significantly less than market rates, with annual yields ranging from 0.05% to 0.14%, while other brokerages were paying customers around 2%.
Merrill Lynch denied wrongdoing as part of the settlement. A Bank of America spokesperson declined to comment, and lawyers for the customers did not immediately respond to requests for comment.
Similar lawsuits have been filed against large banks and brokerages over low-yielding sweep accounts, particularly as interest rates rose in 2023 and 2024. These cases have seen mixed success, with one Manhattan federal judge allowing part of a lawsuit against JPMorgan Chase to proceed in February, while another judge granted final approval to a $70 million settlement with Oppenheimer & Co. on September 18.
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