Schwab Faces Cash Sweeps Suit Alleging Elder Financial Abuse

By Dinah Wisenberg Brin

What You Need To Know

• The spread between client and Schwab's interest rates boosted firm profits, the suit contends.
• Schwab breached its loyalty duty to customers, the complaint alleges.
• Schwab says its sweeps program is compliant and transparent.

A proposed class action lawsuit against Charles Schwab over the interest paid in its cash sweeps program accuses the firm of elder care financial abuse in addition to breach of fiduciary duty, fraudulent inducement and other violations.

In the lawsuit, recently transferred to U.S. District Court for the Central District of California in Los Angeles, Elizabeth L. Bueno and Abraham Atachbarian also accuse the financial services giant of unjust enrichment, breach of contract and violations of California business and professional codes.

The complaint addresses Schwab’s alleged actions with respect to programs in which it automatically swept customers’ uninvested cash in their non-advisory brokerage accounts into high-interest-bearing deposit accounts at its affiliated banks while paying them “unduly low interest on this money.”

The court posted a notice Monday encouraging the parties to pursue alternative dispute resolution and indicating that it would later issue an order referring them to mediation.

Customers have filed multiple lawsuits nationally accusing Schwab and other asset managers of paying unreasonably low interest rates on balances in cash sweep programs and placing their own profits over clients’ best interests, contending that clients could have earned significantly higher interest elsewhere.

From November 2021 to May 2025, “Schwab never paid more than .45% interest to its customers in its Cash Sweeps Programs. Since December of 2024, the rate has dropped as low as .05%,” the complaint alleges.

“By doing so, in a conflict of interest and in breach of its duty of loyalty to its customers … Schwab was able to earn significant undisclosed interest on the interest rate spread and fees for itself, while paying its customers … less than the contractually required reasonable or prevailing rates of interest, depending on the type of account they maintained,” it contends.

The suit alleges that “Schwab intentionally failed to disclose the enormous spread that it was earning between the low rates of interest it paid to customers as compared to the rates that Schwab and its Program Banks were earning with customers’ uninvested monies," although the rates were published in a separate disclosure.

This earned interest helped fuel Schwab’s profits and finance its transaction with TD Bank, the lawsuit contends — apparently a reference to its TD Ameritrade acquisition.

“Schwab paid customers depressed rates of interest, in a high-interest rate environment rather than ‘reasonable’ rates or rates of interest that were consistent with prevailing market and business conditions, as required,” the plaintiffs allege.

The proposed class comprises all California residents who held non-advisory brokerage and/or retirement accounts with Schwab and had cash deposits from those retirement accounts invested in cash sweep programs during the relevant period. A subclass includes Californians 65 or older who had cash deposits in their retirement accounts subject to cash sweep programs, according to the complaint.

The case, moved from California Superior Court, appears to be a refiling or amended complaint from one filed earlier in the year.

"Our cash sweep program is transparent, fully disclosed, and operates in compliance with all applicable regulations. We stand firmly behind our program which aligns cash management options to our clients’ financial needs and goals," a Schwab spokesperson told ThinkAdvisor by email.

"We offer extensive support and flexibility, enabling clients to manage their cash in a way that best fits their individual financial needs. Whether they seek more accessible cash for daily use or prefer investments aimed at higher returns, the choice is theirs to make," added the spokesperson. 

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Schwab Faces Cash Sweeps Suit Alleging Elder Financial Abuse