Some of Wall Street's biggest giants have been dragged into the court fight over the low interest rates offered on many cash sweep accounts.

Class-action lawsuits have been filed in various U.S. District Courts over the last few weeks against Raymond James, JPMorgan, Schwab and UBS alleging that their low-interest cash sweep programs violate fiduciary standards.

These institutions’ behavior was “improper and not in those customers’ best interest,” said attorney Alan Rosca at Rosca Scarlato in Washington, D.C.,who represents plaintiffs in the cases against UBS and JP Morgan. 

This brings the total count of such suits to eight this year alone.

Cash sweep accounts are where brokerage firms park uninvested client funds that may accumulate before and after being invested in brokerage accounts. Cash sweep accounts are supposed to move unused money into interest-bearing vehicles, typically money-market funds. But the wave of lawsuits allege that, at a time of higher interest rates, these institutions’ sweep accounts pay a lot less than CDs or money market funds at a neighborhood bank.

The brokerage institutions in these lawsuits are accused of profiting from the difference between what they can earn from these cash accounts and what they give their customers. Though no exact dollar amount has been specified, the defendants are accused of generating substantial revenues from clients’ idle cash while giving those clients only a tiny percentage. Moreover, they alllege this activity is hidden from clients and and that the companies  fail to adequately explain how their cash sweeps programs work.

The new cases add to lawsuits that have been filed across the country.

In the latest filings, a Punta Gorda, Fla., woman sued Raymond James Financial last last month, alleging that for cash balances under $100,000, the broker-dealer paid 0.25%, compared with 4.6% at Vanguard and 4.98% at Fidelity. At around the same time, similar lawsuits were filed against JPMorgan Chase and Charles Schwab & Co. A lawsuit gainst UBS Financial Services followed earlier this month.

These follow earlier class-action lawsuits against Ameriprise Financial, LPL Financial, Wells Fargo, and Morgan Stanley, over their cash sweep programs.

Though the problem of unfair cash sweep accounts may not be new, the awareness definitely is, said Robert Jackson Jr., a professor at the NYU School of Law and co-director of its Institute for Corporate Governance and Finance.

“There are at least two factors driving increased scrutiny into these practices,” he said. “First, banks have earned extraordinary profits over the past several years as interest rates have increased, while their retail clients have seen their rates paid in sweep account remain flat. … Second, regulators like the SEC have recently turned their attention to this issue.”

Last summer, he said, in reaction to this spate of lawsuits and potential regulatory scrutiny, some institutions raised the rates they pay their sweep account customers. Among them were Wells Fargo, Morgan Stanley and Merrill Lynch. This, said Jackson, “shows that the banks know they have not been paying reasonable rates to their customers.”

The size of the problem is impossible to measure precisely, he conceded, but he called it “massive.” The banks that have recently increased the payout rates on their cash sweep accounts have acknowledged that “those changes will cost the banks hundreds of millions of dollars in net interest income,” he said.

These cases, however, only represent “the tip of the iceberg in terms of the harm suffered by customers of these banks,” he said.

“Individual investors have lost out on substantial interest income on their cash enrolled in sweep programs,” said Michael Dell'Angelo, general counsel at Berger Montague in Philadelphia, a law firm that represents plaintiffs in the UBS and JP Morgan cases. “Certain financial institutions have favored themselves to the detriment of their customers.”

He added that customers eceived only a small fraction of the returns that their cash generates. The financial institutions, on the other hand, are “paying themselves the majority of those returns,” he said.

Whether the raised cash-sweep payout rates at a few banks foreshadows broader institutional reforms remains to be seen.

Asked if industrywide change is part of the goal of these lawsuits, attorney Matt Dameron at Williams Dirks Dameron in Kansas City, Mo., one of the practices representing plaintiffs against Raymond James, said, “Our goal is to ultimately deliver justice.”

That means forcing Raymond James to be “disgorged from its ill-gotten gains,” he said. But he acknowledged that he also hopes the class-action lawsuits will be a “catalyst for change in the industry,” he said, by helping to “implement standards that would prohibit brokerage firms from engaging in such self-dealing practices in the future.”

None of the defendants responded to requests for comment.