LOS ANGELES – Wells Fargo & Co. will guarantee that customers harmed by the bank’s practice of opening unauthorized accounts will get back fees they paid and be fully compensated for damage done to their credit scores, according to documents filed early Wednesday to settle several class-action lawsuits.
That could mean the San Francisco bank will end up shelling out substantially more than the $142 million it had previously agreed to pay to settle the lawsuits. A federal judge had said he would not approve the deal without such a guarantee, prompting Wells Fargo to accede to that and a handful of other changes the judge demanded.
The guarantee marks a second big change in the deal, and the second time Wells Fargo has agreed to significantly sweeten the settlement terms as it seeks to put the lawsuits and sham accounts scandal behind it.
In March, the bank agreed to pay $110 million to settle claims over unauthorized accounts dating to 2009. It later boosted that number to $142 million after an internal report on the bank’s practices found that unauthorized accounts may have been created as early as 2002.
Now, the number could grow further, with the bank making an open-ended commitment to pay more than $142 million if it turns out that amount won’t be enough to cover victims’ out-of-pocket losses. The bank had resisted making such a compensation guarantee, with its attorney arguing at a hearing last month that it could result in the bank having to pay customers who never suffered losses.
Still, the exact amount Wells Fargo will have to pay is not known and likely won’t be for months, with U.S. District Judge Vince Chhabria noting at a hearing in May that the $142 million may prove to be more than enough. It’s still not clear how many customers were harmed by the bank.
Plaintiffs’ attorneys estimated as many as 3.5 million sham accounts were created, many more than the 2.1-million figure reported by the bank and regulators last year, but many customers may have had several unauthorized accounts opened in their names.
“We’re working with incomplete information,” Chhabria said at last month’s hearing. “I think, because of that, stricter-than-normal scrutiny is required by the court.”
Wells Fargo must guarantee class-action settlement will fully repay customers, judge says
Chhabria was particularly concerned about how the bank planned to compensate customers whose credit may have been damaged due to any unauthorized credit card accounts.
In an order demanding the guarantee and other changes, Chhabria said the bank should pay more “if it becomes apparent that (customers) suffered significantly greater injury than is currently assumed.”
Along with the guarantee, Wells Fargo and plaintiffs’ attorneys agreed to numerous other changes, including giving customers more time to submit claims, notifying a broader swath of current and former customers, and giving Chhabria additional time to review the method being used to estimate how customers were harmed by damaged credit scores.
Chhabria had said last month he would be inclined to approve the deal if all of those changes were made. If he signs off on the settlement, it would kick off a months-long process during which current and former bank customers will be notified of the settlement terms and be able to submit claims for compensation.
The settlement would be the largest payout by the bank related to the accounts scandal since Wells Fargo last year agreed to a $185 million settlement with regulators, including the Los Angeles city attorney’s office.
The bank’s practices were first uncovered by a 2013 Los Angeles Times investigation which found workers opened the accounts to hit unrealistic account-opening goals set by managers and executives.
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