WASHINGTON (CN) – New York’s attorney general cannot enforce a $100 million consent judgment against Wells Fargo Bank, a federal judge ruled, calling it a “penny-ante enforcement action.”
U.S. District Judge Rosemary Collyer denied the New York attorney general’s Motion to Enforce Consent Judgment on Monday.
The United States and 49 states sued Wells Fargo and other major banks in March 2012 for misconduct in their home mortgage practices. All parties entered a national settlement in April 2012. The national settlement included 25 consent judgments, together worth $25 billion. Wells Fargo agreed to pay $5 billion, without admitting wrongdoing, in exchange for “release of certain liabilities,” Collyer wrote in her 19-page ruling. The bank also had to reform its loan servicing standards and loan modification process.
New York’s attorney general moved to enforce judgment, claiming Wells Fargo failed to comply with five loan servicing standards to which it had agreed.
Collyer was not persuaded by the attorney general’s math.
“NYAG alleges that Wells Fargo failed to comply with these Servicing Standards in 97 out of the roughly 450,000 loans that Wells Fargo services in the State of New York. This amounts to less than .022 percent of the New York loans serviced by Wells Fargo. Despite this small number, NYAG alleges that Wells Fargo repeatedly failed to comply with these Loan Modification Timeline Requirements, subjecting numerous New York homeowners to ‘Kafkaesque delays and obstructions in the loan modification process,'” Collyer wrote.
The issue before the court, Collyer wrote, is whether the state attorney can enforce judgment “when only the court-appointed Monitor has authority to enforce certain terms.”
Collyer found that “The Court finds that NYAG may seek enforcement of the Consent Judgment with limitations described in this Opinion. Even so, because NYAG’s allegations of noncompliance are so insubstantial, NYAG has failed to allege breach of the Consent Judgment.”
She said that the consent judgment “does not require absolute perfection in loan servicing.”
“Errors amounting to .012% of New York loans are just too few to constitute a breach of the Consent Judgment,” Collyer concluded.
“To permit NYAG to enforce failures to comply with the Servicing Standards that are so insubstantial would open the floodgates to lawsuits, running afoul of the core purpose of the Consent Judgment – to resolve problems in the mortgage industry with monitoring and compliance and without litigation. No Party, and certainly not this Court, envisioned penny-ante enforcement actions regarding compliance with the Consent Judgment. For this reason, and to protect the Court’s ability to manage its docket efficiently, NYAG’s Motion to Enforce Consent Judgment will be denied for failure to allege a breach of cont[r]act.”
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