SAN FRANCISCO (CN) – A federal judge said Thursday he will likely approve a $142-million Wells Fargo settlement, despite objections that the deal lets the bank off easy for opening millions of unauthorized accounts.
The class action settlement in Jabbari v. Wells Fargo would release the bank from liability for opening an estimated 3.5 million fraudulent accounts and lines of credit from 2002 to 2017.
Alabama attorney W. Lewis Garrison, Jr. is one of several lawyers who traveled to San Francisco Thursday to urge U.S. District Judge Vince Chhabria to reject the deal. Garrison represents plaintiffs in four separate class actions against the bank in Florida, Georgia, North Carolina and Alabama. State law claims of identity theft could make the bank liable for a potential $2 billion, Garrison told the judge.
“The identity theft claims alone are higher and could be used as a negotiating tactic to drive this number up,” Garrison said of the $142-million deal.
Others argued the deal fails to factor in claims of privacy violations or require the bank to repair damage to customers’ credit scores.
Wells Fargo attorney David Fry said the bank “is committed to making things right” and that it would correct any blots in customers’ credit histories caused by the fraudulent accounts, even though that is not a requirement of the settlement deal.
Adding to the chorus of objections, Utah attorney Zane Christensen said the lack of a concrete figure on how many phony accounts were opened means the settlement figure is based on “a guess.”
Christensen urged the judge to reject arguments that the $185 million Wells Fargo paid in fines to federal regulators and the city and county of Los Angeles last year would serve as a sufficient deterrent against such conduct.
The total cost of those fines is less than 1 percent of the nearly $22 billion in profits Wells Fargo earned in 2016, Christensen said.
But Derek Loeser, representing the Jabbari plaintiffs, defended the settlement as the best deal plaintiffs could get considering substantial challenges to winning class certification.
Loeser called the $2 billion in identity theft claims against Wells Fargo an unrealistic figure.
“Two billion is not going to happen,” Loeser said. “You must prove intent by an employee to commit fraud. It’s an extremely hard case to prove on a class-wide basis.”
Loeser said any actual award for identity theft violations would likely be much smaller than the maximum penalties allowed under 20 different state laws, adding there has never been a successful nationwide class action over such claims.
“We have a bird in the hand,” Loeser said of the $142-million deal.
According to the motion for preliminary settlement approval, Wells Fargo would be liable for $600 million based on a $1,000 maximum fine for each unauthorized account. Violations of the Fair Credit Reporting Act could put the bank on the hook for even more, but Wells Fargo would also try to squash those claims as barred by the statute of limitations.
Chhabria said the deal is likely adequate to cover any financial harm suffered by an estimated 2.73 million class members who were each charged an average of $25 in fees for the fake accounts.
However, the judge wants more information on how the settlement will compensate those who suffered harm from lower credit scores and increased borrowing costs because of the bank’s conduct.
“I do have concern about people who suffered credit injury,” Chhabria said. “That’s why I asked to structure the process to allow me to scrutinize the credit injury and recovery.”
Wells Fargo will pay an extra $1 million to hire an expert to estimate increased borrowing costs and other injuries suffered by those whose credit ratings were adversely affected.
Chhabria asked the parties to make a few tweaks to the settlement approval motion, such as changing the language in the release of liability and adding extra time for the judge to examine the compensation formula for those who suffered damage to their credit ratings.
Chhabria said he would “think about the issues a little more” and grant conditional preliminary settlement approval in an order.
Wells Fargo also faces a shareholder class action claiming its board of directors breached its fiduciary duty by failing to stop the bogus accounts scandal that could cost the bank billions more in future lost revenue.
The bank announced last year that it would end the aggressive sales quota program that led thousands of low-level employees to open millions of unauthorized accounts in customers’ names.
Garrison is with Heninger Garrison Davis in Birmingham, Alabama. Christensen is with Christensen Young & Associates in Sandy, Utah. Fry is with Munger Tolles & Olson in San Francisco, and Loeser is with Keller Rohrback in Seattle.