Wells Fargo & Co. settled allegations that its banking unit violated federal bankruptcy requirements on borrowers who were in Chapter 13 bankruptcy.
The San Francisco-based firm disclosed Thursday that it reached a settlement with
the Executive Office of the United States Trustee Program.
A separate statement from the
Department of Justice indicated that the national settlement agreement was made with Wells Fargo Bank, N.A.
According to Wells Fargo, the agreement resolves disagreements about payment change notices for bankruptcy courts and escrow analyses for borrowers in Chapter 13 bankruptcy.
The Justice Department said that the bank repeatedly failed to provide borrowers with legally required notices — denying them the opportunity to challenge the accuracy of mortgage payment increases.
As a result, Wells Fargo allegedly violated bankruptcy rules that took effect in December 2011 requiring more detailed disclosures.
“Bankruptcy Rule 3002.1 requires mortgage creditors to file and serve a notice 21 days before adjusting a Chapter 13 debtor’s monthly mortgage payment,” the Justice Department statement said. “Wells Fargo acknowledges that it failed to timely file more than 100,000 payment change notices and failed to timely perform more than 18,000 escrow analyses in cases involving nearly 68,000 accounts of homeowners in bankruptcy between Dec. 1, 2011, and March 31, 2015.”
As part of the settlement, which is subject to approval by the U.S. Bankruptcy Court for the District of Maryland, $81.6 million in payments will be made to customers.
Wells Fargo said reserves have already been set aside for the settlement.
More than 42,000 borrowers whose payments increased but failed to receive payment-change notices
will receive $53.6 million of the proceeds in the form of a lump-sum credit to the mortgage.
In addition to the payments, Wells Fargo is making
changes to internal procedures to prevent recurrence of the violations — including improvements to its computer platform, improvements to employee training and oversight and implementation of quality-control processes.
“We believe we have made the necessary investments and improvements in our systems and processes to ensure that payment change notices for the bankruptcy court and escrow analyses for customers in bankruptcy are properly prepared and delivered in a timely fashion,” Wells Fargo Home Mortgage Executive Vice President Michael DeVito said in the statement.
DeVito said that an independent reviewer will distribute the payments and verify
the effectiveness of the improvements.
The government noted that
Lucy Morris of Hudson Cook LLP was selected to serve as the independent reviewer.
“I am pleased that Wells Fargo has acted responsibly by accepting accountability for its deficient bankruptcy practices, agreed to compensate affected homeowners for those deficiencies and committed to making necessary improvements in its bankruptcy operations,” U.S. Trustee Program Director Cliff White said in the government announcement.
While the settlement resolves any actions that could be brought by the Trustee Program for the covered conduct, it doesn’t limit the rights of any borrower or other third party to take action against Wells Fargo.
