Charles Schwab class action alleges bank receives ‘outsized benefits’ from cash sweep programs

Charles Schwab cash sweep class action lawsuit overview: 

• Who: Mary Loughran, Rosemary Orlando and Edward Carr filed a class action lawsuit against The Charles Schwab Corp. and Charles Schwab & Co. Inc. 
• Why: Loughran, Orlando and Carr claim Charles Schwab shortchanged customers with its so-called cash sweep program. 
• Where: The Charles Schwab class action lawsuit was filed in California federal court. 

A new class action lawsuit claims that Charles Schwab benefits itself at the expense of its customers with its so-called cash sweep program. 

Plaintiff’s Mary Loughran, Rosemary Orlando and Edward Carr’s class action claims Charles Schwab takes the “vast majority” of compensation earned from the cash of its customers that it deposits into accounts at one of its affiliated banks. 

Loughran, Orlando and Carr argue Charles Schwab implemented the cash sweep program to “ostensibly” offer customers an “interest paying vehicle” to hold their cash in a way that offers FDIC insurance. 

In reality, however, the class action argues Charles Schwab designed and operated the program to “obtain outsized benefits for themselves from its customers’ cash.” 

“Defendants’ actions in designing, implementing, and operating the Program to benefit itself at the expense of its customers constitutes a breach of the fiduciary duties that CS&Co owes to its customers,” the Charles Schwab class action says. 

Loughran, Orlando and Carr want to represent a nationwide class of consumers who held cash positions in accounts custodied by Charles Schwab, and whose cash was subject to its cash sweep program.

Class action says Charles Schwab failed to adequately disclose it was ‘serving two masters’ 

Loughran, Orlando and Carr argue Charles Schwab failed to adequately — if at all —  disclose to its customers that it was “an agent serving two masters” with its cash sweep program. 

“Defendants shortchanged their customers for the benefit of themselves and their affiliates by negotiating with its Affiliated Banks one-sided transactions related to the Program,” the Charles Schwab class action says. 

The class action lawsuit claims Charles Schwab is guilty of gross negligence, breach of fiduciary duty and unjust enrichment, and in violation of California’s Unfair Competition Law. 

However, a Schwab PR spokesperson tells Top Class Actions, “Allegations aren’t facts.”

“When clients choose a self-directed approach, they have full control over their assets and cash management decisions,” the spokesperson says. “That means they have access to a wide range of cash solutions and information to help them choose the solutions that best fit their individual needs. Our offerings provide safety and liquidity to meet everyday cash needs, and our clients value the option of FDIC insurance protection combined with convenient access to their cash.”  

The plaintiffs demand a jury trial and request injunctive relief along with an award of actual and punitive damages for themselves and all class members. 

Similar class action lawsuits were recently filed against Ameriprise and JPMorgan over claims the financial institutions shortchanged customers while unfairly benefitting from their respective cash sweep programs. 

Have you held cash that was subjected to Charles Schwab’s cash sweep program? Let us know in the comments.

The plaintiffs are represented by Sophia M. Rios, Michael Dell’Angelo and Andrew D. Abramowitz of Berger Montague PC and Alan L. Rosca, Jonathan A. Korte and Paul J. Scarlato of Rosca Scarlato LLC

The Charles Schwab cash sweep class action lawsuit is Loughran, et al. v. The Charles Schwab Corporation, et al., Case No. 2:24-cv-07344, in the U.S. District Court for the Central District of California.

Read About More Class Action Lawsuits & Class Action Settlements:

• Capital One class action alleges it shares data with Meta, Google
• BMO Harris Bank stopped NSF fees but may have previously unlawfully charged them
• CitiBank may have improperly charged NSF fees despite eliminating them in 2022
• Chase Bank aided Ponzi scheme with real estate developer, lawsuit claims