Did a $94 Million Wells Fargo Settlement Get Lost in Saturation?

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It’s hard to say why some eight- or nine-figure colonies make the headlines and others don’t, especially when they occur almost in tandem.

Wells Fargo on September 9 agreed to pay $94 million to settle a class action lawsuit, filed in the U.S. District Court for the Southern District of Ohio, alleging that the bank automatically forbade mortgage borrowers if they notified the lender, near the start of the COVID-19 pandemic, that they were having financial difficulties.

The problem is that borrower participation was an option for the forbearance program mandated by the CARES Act of 2020.

The plaintiffs claimed that the temporary suspension of mortgage payments hurt borrowers’ credit, prevented them from refinancing at lower interest rates and hampered the likelihood that they could borrow elsewhere.

Plaintiffs could also have argued that Wells was profit-driven, as he could buy forbearance mortgages at a discount through a so-called early redemption from the pool, then resell the loans at market rates when they left. abstention.

The bank, however, said it was “working hard to help customers who were concerned about financial hardship and their ability to make their upcoming mortgage payments,” according to a declaration to Law360 Wells Fargo spokesman Tom Goyda.

“We support this settlement because we believe it is in the best interest of our customers,” Goyda said.

About $59 million of the settlement will be set aside for customers who can claim harm as a result of forbearing. (The attorneys, however, plan to file a petition seeking up to 25% of that fund for fees and expenses.) The remaining $35 million is expected to be split among borrowers across 212,000 loans — so each member of the class would receive approximately $165.

Still, $94 million is no small change. However, during the same news cycle (excluding the weekend), the Department of Labor (DOL) also announced a settlement with Wells Fargo – whereby the bank would pay approximately $145 million to settle an investigation into the allegations that a 401(k) plan that bank employees invested in had overpaid for Wells Fargo preferred stock.

There may be a number of reasons why the DOL settlement has attracted more attention than the forbearance suit. One is recency: the Labor Department settlement was announced on a Monday morning; the class action lawsuit was settled on a Friday. On the other hand, $145 million is more than $94 million. On the other hand, the Department of Labor has a communication unit; the borrower class does not, beyond its lawyers. Indeed, Wells Fargo, on its websiteissued a press release discussing the DOL investigation but not the class action lawsuit.

From Wells Fargo’s perspective, mortgages have been through a lot this year — from racial disparity allegations to multiple rounds of layoffs. Honestly, would the bank be disappointed if half a double dose of penalties went relatively unnoticed?

Maybe the forbearance suit was just lost in saturation. Market watchers may only have the ability to digest an eight or nine figure settlement at a time, and the DOL probe may have won.

Analysts need only look back a year for the last instance of Wells Fargo receiving two servings of penalty-related news in 24 hours. The Office of the Comptroller of the Currency (OCC) last September fined the bank $250 million for failing to make progress on a 2018 consent order in a timely manner — specifically, for failing to “detect , prevented and quantified inaccurate loan modification decisions”.

A day earlier, another regulator, the Consumer Financial Protection Bureau (CFPB), let a consent order related to the bank’s fake accounts scandal expire in 2016.

Perhaps not wanting the news from the CFPB – a bright spot for the bank – to be replaced by the headlines of a new penalty, Wells Fargo addressed the two developments in a single statement.

The timing may be a coincidence. It should be noted, however, that the two double doses of penalty news – in 2021 and 2022 – arrived in September, the last month of the fiscal year. And it may be – in this year’s case – that the bank is looking to put DOL and forbearance issues behind it and look to fiscal 2023 with less on its to-do list. (It would, after all, be in line with CEO Charlie Scharf’s desire for the bank to confront its black eyes of reputation with “a different sense of urgency and resolve.”)

In their motion, forbearance class attorneys wrote, “Without a settlement, litigation would drag on for years, delaying any prospect of relief, while significantly increasing transaction costs to the class’ detriment.”

Wells Fargo may have agreed that a cleaner slate is best.

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