The $100 fee that Vanguard introduced last year for brokerage customers who close their accounts and transfer the money to other investment firms is an “unlawful, fraudulent and unfair assessment,” a recent federal class-action lawsuit against the company alleges.
The putative class action, filed last week in U.S. District Court in Philadelphia by former Vanguard account holder Sean Errol Quinn, follows a similar complaint from another investor, represented by the same lawyers, submitted in January in Common Pleas Court in Chester County, Pennsylvania, and then voluntarily dismissed.
“For years, Vanguard lured consumers into a brokerage contract with the promise of low fees, causing consumers to choose Vanguard over a myriad of other financial investment companies. If consumers no longer wished to use Vanguard, they could close their account, free
(of) charge,” Quinn’s lawsuit states.
“In July 2024, however, Vanguard unilaterally modified its account agreement with its customers to impose a new, mandatory $100 fee for those customers who wished to close their account at Vanguard. The fee applies to all accounts with less than $5 million in assets,” it says.
Vanguard, an asset manager known for its low-cost mutual funds and ETFs, describes its newly implemented brokerage Account Closure and Full Transfer Out fee as a “processing fee,” but it “is not at all tethered to the cost of ‘processing’ account closures,” the complaint contends.
“Indeed, there is virtually no cost to Vanguard in ‘processing’ an account closure. Instead, the fee is a classic ‘junk fee’ designed to penalize all the but the highest-earning customers who wish to close their account at Vanguard,” Quinn alleges.
The fee “is designed to recoup extra profit and an unenforceable penalty devised to compel average consumers to stay locked into the contract, or otherwise to punish them if they decide to leave and take their money with them,” the lawsuit contends.
It alleges Vanguard’s adding the fee was “deceptive, unfair, and in bad faith,” and says customers had no way to anticipate it when they opened their accounts and no reasonable way to avoid it once the fee was imposed. The lawsuit also contends the fee is unlawful under the New York state law that governs Vanguard’s brokerage accounts.
The fee disproportionately harms “only low-to-middle class consumers while expressly exempting multimillionaires,” the suit says.
The transfer-out fee, along with other new Vanguard charges, went into effect on July 1. The financial services giant announced the change two months in advance, giving customers an opportunity to leave.
"Vanguard provided advanced notice to clients prior to establishing this conventional processing fee, which was established in accordance with all applicable rules and regulations," a Vanguard spokesperson told ThinkAdvisor on Thursday. "We look forward to vigorously defending against this meritless claim."
Jeff DeMaso, editor of the Independent Vanguard Adviser, agreed in his newsletter Wednesday that the exit charge was a junk fee, "but, well, I’m not a lawyer or legal expert. Vanguard isn’t the only financial platform to charge fees when closing accounts, so we’ll see how this plays out."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.