(CN) - The 9th Circuit dismissed a class action accusing Wells Fargo of charging excessive underwriting fees. The three-judge panel said the law "does not reach the practice of 'overcharging.'"
Lead plaintiffs Alinda and Armando Martinez said they were charged an $800 underwriting fee when they refinanced their mortgage through Wells Fargo. They said the fee was "unfair," "fraudulent" and "illegal," because it wasn't related to the bank's actual underwriting costs.
They filed a class action on behalf of California mortgage borrowers who were similarly "overcharged" by Wells Fargo, according to the ruling.
U.S. District Judge Ronald Whyte granted the bank's motion for dismissal, ruling that "even if Wells Fargo had overcharged the Martinezes for its services, it did not violate RESPA (Real Estate Settlement Procedures Act) in doing so because Wells Fargo provided a service in exchange for a fee."
Whyte also dismissed the Martinezes claims of unlawful conduct and fraud, because they failed to show "an underlying illegal predicate act."
The appellate panel in San Francisco upheld Whyte's ruling, saying the law only bars lenders from accepting money "where no service whatsoever is performed in exchange for that money."
Writing for the 9th Circuit panel, U.S. District Judge Barbara Lynn said the law "cannot be read to prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed."
The Martinezes also argued that Wells Fargo's overcharges and failure to disclose its actual costs constituted unlawful practices. Federal law requires the bank to "conspicuously and clearly itemize all charges imposed upon the borrower."
The bank insisted that it must disclose only what it charges the customer, not its own costs.
The Martinezes argued, unsuccessfully, that the distinction between a "charge" and a "cost" is hypertechnical.
"It is beyond dispute that there is a difference between what a business 'charges' its customers for a service or product, and what the service or product 'costs' the business," Lynn wrote. "That difference is called 'profit.'"
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