Merrill Lynch has agreed to pay $39 million to resolve claims that it failed to pay reasonable interest on uninvested cash automatically swept into deposit accounts for Merrill Edge retirement customers. The proposed settlement was filed in federal court in Manhattan on Wednesday, September 30, 2026, just weeks before the case was set to go to trial in mid-October, and still requires a judge's approval.
The case, formally known as Sarah Valelly v. Merrill Lynch, Pierce, Fenner & Smith Inc., was originally filed in August 2019, according to Wolf Popper LLP, the firm representing the class. As reported by NTD News, Merrill Edge customers brought the class action after their retirement asset savings program automatically moved cash into deposit accounts held at Bank of America, Merrill's corporate affiliate. The class covers customers whose cash was swept through the program from December 15, 2016, through March 15, 2020.
A Rate Gap That Spanned Years
At the center of the dispute is a stark gap between what Merrill paid and what was available elsewhere. The retirement asset savings program accounts paid annual interest rates ranging from 0.05 percent to 0.14 percent, even as other brokerages paid customers about 2 percent on comparable cash, per NTD News. During the broader 2016–2020 class period, the benchmark federal funds rate exceeded 2.40 percent while Merrill's sweep yields never approached that level, Wolf Popper's case materials show.
Wolf Popper reported that the sweep accounts paid approximately 0.14 percent during the class period, describing the rate as well below comparable products. Merrill Edge customers alleged the firm failed to meet a contractual obligation to pay a reasonable rate of interest on the swept funds. Merrill, for its part, denied wrongdoing in agreeing to the settlement, and the filing does not establish that the firm breached its contracts, according to NTD News. A Bank of America spokesperson did not respond to NTD News's request for comment.
A Judge's Rulings Narrowed Merrill's Options
The settlement follows a string of courtroom setbacks for Merrill. U.S. District Judge Valerie Caproni allowed customers to proceed as a class on February 26, finding that their agreements contained the same terms and that their claims could be decided using common evidence; she appointed Wolf Popper as class counsel the same day, per NTD News. Per Wolf Popper, Merrill could not defend the case by arguing that customers should simply have chosen another brokerage offering a higher rate.
Caproni dealt Merrill another blow in July 2025, denying the firm's motion for summary judgment and ruling that a jury would have to decide whether its default yields satisfied contractual obligations to pay reasonable interest. The same report notes that Caproni rejected Merrill's defense that its payouts were reasonable simply because they matched what other firms paid on cash swept to their own affiliated banks. The court also upheld expert economic testimony from Rutgers Business School professor Dr. Darius Palia in September 2024, according to Legal 500, which found that Palia's pass-through methodology — comparing Merrill's sweep rates to commercial online savings accounts — was admissible evidence for trial.
Part of a Broader Wall Street Reckoning
Merrill's settlement lands amid a wider industry reckoning over cash sweep programs that intensified as the Federal Reserve raised rates. In January 2025, the SEC penalized Merrill Lynch $25 million and Wells Fargo Advisors $35 million over compliance failures tied to cash sweep programs in advisory accounts, according to AdvisorHub. That regulatory order found that yield spreads between default bank sweep programs and higher-yielding alternatives reached nearly four percentage points during rate hike cycles.
Brokerages earn cash sweep revenue through net interest margins, capturing the spread between the high market rates they earn deploying swept deposits and the low default yields credited to customer accounts, as explained by OpenClassActions.com. The scale of those margins became apparent in a 2024 class-action complaint against Morgan Stanley, which alleged the firm generated over $8 billion in net interest income in 2023 alone. Similar sweep-account lawsuits were filed against multiple firms in 2023 and 2024, and NTD News reports that JPMorgan Chase was ordered in February to face part of a similar lawsuit.
Regulatory momentum has since cooled even as litigation continues. In February, the SEC concluded its cash sweep investigation into LPL Financial without recommending enforcement action, following a similar closure for Morgan Stanley, according to InvestmentNews. That has left private class actions as the main avenue for accountability — a dynamic reflected in Oppenheimer & Co.'s receipt of final approval for a $70 million settlement on September 18, resolving its own cash sweep claims, as reported by Traders Union.
What It Means for Retirement Savers
For everyday retirement account holders, the dispute underscores how a default setting can quietly chip away at long-term returns. Near-zero default sweep yields function like an unbilled account fee on retirement brokerage balances, imposing continuous performance drag on uninvested cash sitting between contributions, trades, and rebalancing, according to Finimize. Those yields can weigh on returns when retirement-account cash earns little interest.
Judge Caproni must now decide whether to approve the $39 million Merrill Lynch settlement, which would close out more than seven years of litigation without any finding that the firm breached its contracts.
