Wells Fargo News

Wells Fargo faces dozens of lawsuits from angry customers over its fake accounts scandal, but it is reportedly seeking to push those disputes into arbitration.

Bloomberg News reports the bank has filed a motion in U.S. District Court in Salt Lake City to keep one particular lawsuit from getting to court. In the motion, Wells Fargo says customers agreed to resolve disputes out of court when they opened their accounts.

The lawsuits are the result of Wells Fargo's actions, opening millions of bank and credit card accounts in customers' names without their knowledge or permission. At the time, the bank was engaged in a sales strategy known as “cross-marketing,” where customers with one type of account were encouraged to open another type, increasing the amount of fees flowing to the bank.

Went beyond convincing

The bank offered incentives to employees who were able to convince customers with bank accounts to open credit card accounts, and vice-versa. Federal regulators charged Wells Fargo went beyond trying to convince customers to open new accounts and simply opened the accounts for them without their knowledge. The bank fired 5,300 employees and paid $185 million in fines. It's CEO, John Stumpf, after being raked over the coals by Congressional committees, took early retirement.

Bloomberg reports the motion, filed in the lawsuit brought by 80 Wells Fargo customers, points out that the arbitration clause has already been validated in another lawsuit brought in California.

Arbitration is a form of dispute resolution favored by large corporations with lots of customers. It keeps disputes out of court and, while saving in legal fees, often results in more favorable rulings. Besides banks, telecommunications companies usually require their customers to agree to arbitration.

Considering a ban

A year ago, the Consumer Financial Protection Bureau (CFPB) said it was considering proposed rules that would ban consumer financial companies from using “free pass” arbitration clauses.

With this free pass, CFPB said companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers.

“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” CFPB Director Richard Cordray said at the time.

Cordray said corporations are using the arbitration clause as a free pass to sidestep the courts and his agency would consider banning arbitration clauses that block group lawsuits.

Everyone denies having quotas. The police insist they don't but ask yourself how often you've gotten tickets late in the month. Telephone solicitors say they don't have quotas but how often have you been signed up for something you never heard of?

David E. Douglas says Wells Fargo Bank is up to the same shenanigans. In a lawsuit in Los Angeles County Superior Court, Douglas charges that employees of three different Wells Fargo branches opened new accounts in his name and his business' name without his knowledge.

Douglas says branch employees are under so much pressure to sign up new customers that they use the information they already have on existing customers to open phony new accounts. Douglas claims the individual defendants opened at least eight accounts in his name and forged his signature on the applications without his knowledge, Courthouse News Service reported.

Given the demands Wells Fargo makes on its employees, it "should have known that its employees and bank managers routinely use the account information, date of birth, and Social Security and taxpayer identification numbers of defendant Wells Fargo's existing bank customers to use the existing bank customers' money to open additional accounts in the existing customers' names without their knowledge or consent and by forging the signature of their existing customers without their knowledge or consent to open said additional accounts, including purported business accounts for businesses that do not exist," Douglas' suit charges.

Even after being alerted to the issue, Wells Fargo did nothing, Douglas alleges. He says in the suit that when he found out about the unauthorized accounts, he contacted a fraud investigator at the bank's Beverly Hills branch. She assured him that Wells Fargo would "conduct a thorough investigation and make him whole," but he never heard back from her or anyone else at the bank, so he was forced to sue, Douglas says in the complaint.

The Justice Department has sued Wells Fargo, the nation's largest mortgage lender, accusing it of "reckless" lending and sticking the Federal Housing Administration (FHA) with the tab for loans that went bad.

Prosecutors say they are seeking "hundreds of millions of dollars" in damages on behalf of the FHA.  The complaint, filed in New York City, alleges that for more than a decade, Wells Fargo engaged in "reckless" underwriting of government-backed loans.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," Manhattan U.S. Attorney Preet Bharara said. "As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.

"What’s more, even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year. Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay,” Bharara said. 

At issue are more than 100,000 FHA-backed loans. Wells Fargo said the loans met federal lending guidelines when half of them didn't, the government alleges.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” U.S. Attorney Preet Bharara said in a prepared statement.

The Justice Department's case is similar to those filed earlier against Citigroup, Deutsche Bank and other lenders. Deutsche Bank has agreed to pay $202 million and Citigroup is paying $290 million. A suit against Allied Home Mortgage is still pending. Bank of America has said it reached an agreement to resolve claims for FHA-insured loans made by Countrywide Mortgage.

In July, Wells Fargo paid $125 million and set up a $50 million assistance fund to settle federal allegations that it discriminated against minority borrowers.

A class action lawsuit alleges that lending giant Wells Fargo profited off an unholy scheme with an appraiser owned by Wells Fargos parent company.

According to the suit, Wells Fargo requires borrowers to use Rels Valuation, an appraisal service owned by the same company that controls Wells Fargo. In turn, Rels, which uses third-party appraisers to perform the work, forces these vendors to come back with an appraisal that meets Wells Fargos expectations, and pays the appraisers well below market value for their services.

Despite the bargain that Wells Fargo receives on the appraisals, it continues to charge consumers the full amount for the service, and pockets the difference.

As described in the suit, Wells Fargos alleged scheme is exceedingly clever and complex. According to the suit, filed in the United States District Court for the District of Arizona, Wells Fargo pressures subcontracting appraisers to report back with a price that will allow Wells Fargo to underwrite the loan without significant obstacles, regardless of whether the figure is accurate.

Additionally, Wells Fargo allegedly informs the appraiser that they will pay them drastically less than the going market rate for their services. If the appraiser refuses to comply with either of these conditions, they are placed on Wells Fargos exclusion list, and are not considered for future appraisals.

Because of Wells Fargos giant stature — it is the number one mortgage lender in the nation — refusal to acquiesce in these demands could mean a drastic drop in appraisers business and significant damage to their reputation.

Under the rules laid out in the Real Estate Settlement Procedures Act (RESPA), no company is allowed to require consumers to use another company, as such arrangements practically invite the kind of price gauging alleged here. However, the Act makes an exception for lenders, since appraisals are ostensibly done to protect their interests, and allowing them to choose a trusted appraiser helps further this purpose.

Under RESPA, however, when a lender requires the use of a certain appraiser, they must inform the consumer both of the relationship and of the amount they were charged by the appraiser. According to the suit, Wells Fargo sometimes disclosed the relationship between themselves and Rels, but never disclosed the price they paid for the appraisals, giving consumers no indication that they were paying as much as twice what Wells Fargo had for the service.

The suit estimates that, given Wells Fargos size and influence, tens or even hundreds of thousands of homeowners have been victimized by the scheme.

It brings claims under both RESPA and the Racketeer Influenced and Corrupt Organizations Act (RICO), since the scheme was allegedly carried out across state lines via U.S. mail and interstate wire facilities. The suit also alleges unjust enrichment against Rels and breach of fiduciary duty and unfair competition against Wells Fargo.

Reader response

I would like to applaud Jon Hood for his bravery in telling the truth. I would also like to thank whatever Attorney(s) are involved and to lend support for their cause. Our business as honest, ethical appraisers has been derailed by these greedy companies. Did you know the CEO for Wells sat on the recent HVCC comittee to determine policy?

RC, Colorado Springs, CO