Wells Fargo to pay $50 million over 'hidden fees' for defaulted homeowners
The latest Wells Fargo settlement comes on the heels of a scandal that rocked the banking giant last month, in which thousands of employees were caught opening fraudulent customer accounts.
Wells Fargo on Tuesday morning added to its growing list of black marks with a settlement offer directed at another accusation of malfeasance.
This time the San Francisco-based banking giant offered to pay $50 million to settle allegations that it cheated homeowners whose mortgages were in default out of unwarranted fees that added to their financial burdens. The corporation denies any wrongdoing, but decided to settle the case to avoid further litigation, spokesman Tom Goyda told Reuters. Wells Fargo’s settlement offer still needs to be approved by an Oakland, Calif. court.
In a class-action lawsuit involving about 250,000 homeowners, the bank is accused of marking up fees on certain services, including home appraisals, that the bank orders after owners default on their mortgage loans. “To generate hefty profits, the lending industry has substituted inflated interest rates with inflated fees,” the firm Baron & Budd, which represented the class action, wrote in a complaint filed with a US District court in California in July 2012.
According to Reuters, Wells charged $95 to $125 for the contested appraisals, which cost the company only $50 or less, and hid them in murky categories on mortgage statements. Ultimately, reports Reuters, this added hundreds or thousands of dollars to the mortgage loans of already indebted borrowers.
“Defendants are aware that it is improper to mark-up the fees assessed on borrowers’ accounts for default-related services,” wrote the plantiffs’ attorneys. “Therefore, defendants fraudulently conceal these fees on borrowers’ accounts...identifying them on mortgage statements with cryptic descriptions such as 'Other Charges' or 'Other Fees.'"
Lawyers for Wells Fargo called the claims "far-fetched" in court filings, reports Reuters, claiming that the US regulators have acknowledged that bank fees similar to the ones in questions can include a profit margin.
The case adds to the mounting scandals that in recent months have plagued the biggest bank in the country.
In August, Wells Fargo agreed to pay a $4.1 million to settle allegations that it charged illegal fees and misled student-loan borrowers. A month later, Wells was fined $185 million by California and federal regulators for going too far in the pursuit of sales goals by signing up millions of customers for costly financial products that they didn't request.
The latter was the largest fine ever levied by the 5-year-old, federal Consumer Financial Protection Bureau against a financial institution.
In the wake of the fraudulent account scandal, Wells Fargo apologized, fired thousands of employees over inappropriate sales conduct, and offered refunds to affected customers. The company's former chef executive, John Stumpf, abruptly retired in the face of mounting criticism.
This week the company even launched a national television advertising campaign to try to redeem its battered brand after the biggest scandal in its 164-year existence.
"My primary objective is to restore trust in Wells Fargo – restore pride in our company and mission. That may seem like a long ways off today, but I promise you we will," new CEO Tim Sloan told employees at a company-wide meeting last week, as the Associated Press reported.
Despite the troubles, the bank reported in its latest quarterly report in September that revenue, average loans, and average deposit amounts were up from the same quarter last year. Though as one recent survey predicts, there may be more financial trouble yet to come.
“Our projections indicate Wells Fargo will lose $99B in deposits and $4B in revenues over the next 12-18 months as a direct result of the scandal, dealing a hard blow to the bank’s finances,” wrote cg42, a New York City management consulting firm, in a report of results from a recent, online survey.
The firm surveyed 1,000 Wells Fargo customers and 500 customers from its competitors, including Bank of America, Chase, and Citibank. It found, among other things, that while only 3 percent of Wells Fargo’s customers report being affected by the scandal, 30 percent say they are actively exploring other banking options. According to cg42, 14 percent have already decided to switch banks as a result of the scandal.