Merrill again faces client complaint over yields on cash

With interest rates having risen for almost two years and firms facing scrutiny on cash sweep accounts, a client of Merrill Edge, the online brokerage and advisory arm of Merrill Lynch, this week sued the firm, alleging that Merrill Edge had failed to live up to the promise in its contract of paying a "reasonable rate of interest" on assets in retirement accounts.

The plaintiff, Margaret McCrary, filed the complaint seeking class action status Monday in federal court in Manhattan.

"Merrill consistently paid the lowest rates on swept cash of brokerage firms surveyed by Crane Data and BofA Securities, regardless of whether those brokerages swept cash to affiliated or unaffiliated banks," the complaint alleges. McCrary is alleging breach of contract and seeking class action stats for clients who had Merrill Edge retirement accounts beginning in March 2022.

"Comparable brokerages such as Fidelity Investments, R.W. Baird, Robinhood, and Vanguard Investments, which did not sweep cash to affiliated banks, but rather swept cash to independent, unaffiliated banks, paid a substantially higher rate on swept cash, than Merrill," according to the complaint.

For example, starting in August of this year, Fidelity paid retirement investors total annual interest of as much as 2.72% on swept cash regardless of the amount of assets under management, and as of Sept. 8, R.W. Baird paid retirement investors from 2.07% to 4.15% on swept cash, depending on cash balances, according to the complaint.

Merrill Lynch has faced legal action about yields and interest rates on cash before. In 2019, a different client of Merrill Lynch and its parent, Bank of America, sued the company over what she termed the “paltry” yields in her sweep and checking accounts held at the firm.

That lawsuit, filed by Sarah Valelly, who also had accounts at Merrill Edge, was dismissed a year later but was revived in 2021 when she filed an amended complaint.

The attorneys in both the McCrary and Valelly complaints work for Wolf Popper, a plaintiff's firm.

"This is the third complaint these lawyers have brought on the same issue over the last four years," a spokesperson for Merrill Lynch wrote in an email. "We’ve successfully defended against these claims for the last four years and will continue to defend ourselves in these matters."  

In early 2022, at a time when interest rates generally were rising in conjunction with increases in the federal funds rate, Merrill Edge kept retirement account savings program rates "unreasonably low," according to the complaint, which claims those rates ranged from 0.01% to 1.06% at the end of 2022. Rates in the program did not rise at all this year, according to the complaint.

An interest rate of 0.01% is "abusive," said Robert C. Finkel, a partner at Wolf Popper. It is equivalent to $1 of interest on $10,000 in cash per year.

The Federal Reserve has kept rates in the 5.25% to 5.5% range — a 22-year high — but most Fed officials penciled in three rate cuts in 2024 in projections released Wednesday after their two-day meeting.