The Merrill Lynch unit under Bank of America (ASX: BAC) has agreed to pay $39 million to settle a class-action lawsuit. The lawsuit alleged that Merrill Lynch paid interest rates close to zero, rather than market rates, on idle cash in client retirement accounts.

The settlement documents were filed late Wednesday local time with the federal court in Manhattan. The settlement agreement still requires approval from U.S. District Judge Valerie Caproni; if approved, it would avoid a trial scheduled for mid-October.

Clients who held Merrill Edge online accounts between December 15, 2016, and March 15, 2020, alleged that Merrill Lynch violated client agreements by automatically transferring cash balances into deposit accounts that paid interest below a "reasonable rate." The complaint stated that these automated sweep accounts offered annual yields of only 0.05% to 0.14%, while other brokerages paid clients yields of about 2%.

Merrill Lynch denied any wrongdoing in the settlement agreement. A spokesperson for Bank of America declined to comment.

Many large banks and brokerages have faced lawsuits over low-yield "sweep accounts," especially in 2023 and 2024, when clients pointed out that the returns on these accounts failed to keep pace with rising interest rates. The outcomes of these lawsuits have varied.

In February of this year, another federal judge in Manhattan ruled that JPMorgan Chase must face some claims in such a lawsuit. On September 18, a third federal judge in Manhattan approved a $70 million settlement with Oppenheimer & Co.