The consumer finance arm of Wells Fargo & Co has agreed to provide subprime borrowers with nearly $7 million to settle a class action lawsuit.
Wells Fargo Financial Inc. announced it has reached an agreement with the law firms of Cotchett, Pitre & McCarthy and Miner, Barnhill & Galland P.C. to settle a class action lawsuit originally filed in San Francisco Superior Court during 2003. The litigation was focused on nonprime mortgage lending practices in California.
The Association of Community Organizations for Reform Now, which was a party to the lawsuit, accused Wells of failing to adequately advise borrowers between Dec. 18, 1999, and Nov. 20, 2005, about points charged and prepayment penalties, according to the statement. Wells also allegedly misreported loan balance.
The San Francisco-based banking behemoth said the court must still approve the settlement, which calls for the company to earmark $2.4 million in relief for 60-day delinquent borrowers and up to another $4.4 million in cash payments.
It also said it will continue several improvements it had already put into practice for another three years and will implement other practices.
In 2005, a complaint was filed in the Los Angeles County Superior Court alleging Wells systematically discriminated against minority borrowers by denying them the benefits of its loan origination computer program, Loan Economics, which enabled originators to offer discounts.
The year before that, the U.S. 2nd Circuit Court of Appeals reinstated parts of a class-action lawsuit that had been thrown out by the U.S. District Court of Appeals in the Eastern District of New York. That suit, filed by California and New York homeowners, accused Wells of charging excessive fees by increasing the costs of services provided by other companies.
Earlier that same year, ACORN announced it was filing a class action lawsuit against the unit on behalf of Illinois borrowers. At issue were loans with interest rates above 8% and fees greater than 3% -- a violation of Illinois state law, according to ACORN. Many of Wells' recently originated high rate loans allegedly have fees of as much as 10%.
"Wells Fargo Financial said it has always had good nonprime lending practices and in recent years has made numerous improvements to make them even stronger," today's announcement said. "All parties to the proposed settlement agreed these improvements are in the best interest of borrowers."