Merrill Lynch Settles Cash Sweep Interest Lawsuit for $39 Million

Bank of America’s Merrill Lynch unit has agreed to a $39 million settlement to resolve a class action lawsuit claiming the firm paid insufficient interest on idle customer cash. The agreement addresses claims from Merrill Edge online account holders who saw their uninvested funds earn interest rates between 0.05% and 0.14% from December 15, 2016, to March 15, 2020, according to a Reuters report.

"This settlement is very beneficial for the class," said Adam Blander, a lawyer representing the affected customers.

Comparison to Industry Standards

The plaintiffs alleged that the interest rates provided by Merrill Lynch were below the roughly 2% yield offered by other brokerage firms during the same period. Cash sweep programs are features in brokerage accounts where idle funds are automatically moved into interest-bearing vehicles, such as money market funds or bank deposits. The disparity between the rates offered by Merrill Lynch and those of competitors formed the basis of the legal challenge.

Regulatory and Legal History

This $39 million accord follows a separate regulatory action involving the same product line. In January 2025, Merrill Lynch agreed to pay $25 million to resolve claims brought by the U.S. Securities and Exchange Commission regarding its cash sweep practices. The firm settled that matter without admitting or denying wrongdoing.

Despite the current settlement, the firm faces additional legal scrutiny. Merrill Lynch is defending against a separate, ongoing class action lawsuit that challenges similar interest rate practices. In its defense against this second action, the company has pointed to changes in its operational policies, noting that it removed the "reasonable rate" provision from its customer agreements during 2023 and 2024.

What Is at Stake

The ongoing litigation highlights an industry trend where brokerages face pressure regarding the transparency and competitiveness of their cash management services. As interest rates have fluctuated, the yield on cash held in brokerage accounts has become a focal point for retail investors and regulators who monitor whether firms are providing reasonable returns on client liquidity.