SANTA ANA, Calif. (CN) — A federal judge indicated Monday that he will allow nationwide litigation to go forward accusing Wells Fargo Bank of forcing unneeded auto insurance on borrowers.
However, in a tentative decision, U.S. District Judge Andrew J. Guilford said he may pare back the plaintiffs’ claims dramatically, including racketeering claims.
The litigation — a number of class actions from around the country consolidated in front of Guilford in Southern California — is only one of the problems to beset Wells Fargo since it admitted two years ago having pressured workers to sign customers up to unwanted bank accounts without their knowledge.
The bank has agreed to pay a $142 million settlement to those customers surreptitiously saddled with unwanted accounts. A federal judge in San Francisco approved the settlement May 30.
In April, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau jointly hit Wells Fargo with a $1 billion civil penalty — $500 million to each agency — over the same mandatory auto insurance program at the heart of the consolidated class actions.
The bank was to pay the fine Monday and also submit a remediation plan about how it would compensate consumers who were not expected to share in the proceeds from the civil penalty, according to attorneys and news accounts.
The gist of the class action complaint is that Wells Fargo, along with co-defendant National General Insurance, “forced auto-loan customers to pay for Collateral Protection Insurance that the customers didn’t want, need, or (in some cases) know about,” Guilford said in his written tentative decision.
A bank making auto loans typically requires its borrowers to have such insurance on their cars to protect the bank’s interests.
But the class plaintiffs claim Wells Fargo took out the insurance even when borrowers had insurance of their own and then added the premium charges, including interest, to their loan principal amounts, often without informing them.
Even when customers complained, the bank and its insurers would not remove the policies, according to the consolidated lawsuit, which the plaintiffs filed in January.
The lawsuit also alleges that insurer National General paid commissions, or “kickbacks,” to Wells Fargo for writing the policies.
The New York Times first disclosed the secret insurance program in July last year when it published the findings of a consulting firm Wells Fargo had hired to look into the issue. The consultant’s report said that 800,000 consumers were caught up in the program, with about 274,000 borrowers being forced into delinquency because of the hidden charges and 25,000 having their autos wrongfully repossessed.
The plaintiffs now claim the number of customers affected could total as many as 2 million, attorneys said.
In separate motions to dismiss the consolidated class action, Wells Fargo and National General argued the plaintiffs’ lawsuit doesn’t meet the strict standards that federal rules require for claiming fraud.
“It’s not a fraud case, and if it is a fraud case, we’re entitled to know why,” Wells Fargo attorney David C. Powell of McGuireWoods told Guilford on Monday. “I want to know what it is they’re complaining about.”
National General’s attorney, Corey Worcester of Quinn Emanuel Urquhart & Sullivan’s New York office, argued that his client had committed nothing akin to fraud.
“What National General did was to act as an outside service provider doing what Wells Fargo asked it to do,” he said.
Further, his client didn’t actually sell insurance to the plaintiff borrowers. It sold the policies to Wells Fargo, and it paid any benefits to the bank, he said.
“The plaintiffs are not consumers of anything that National General sells,” Worcester argued. “The plaintiffs don’t have a claim against National General. They have a claim against Wells Fargo.”
In his tentative opinion, Guilford agreed the plaintiffs hadn’t sufficiently shown there was fraud, and therefore he indicated he would dismiss their claims accusing the defendants of racketeering and of unfair competition under state laws.
“Plaintiffs’ allegations concerning fraudulent misrepresentations include hardly any specifics about the alleged [fraudulent] communications” made to the borrowers, the judge wrote. “The scant descriptions provided for some communications don’t reveal any fraud.”
Plaintiffs’ attorney Aaron M. Sheanin of Robins Kaplan argued, however, that “common sense shows this was a fraudulent scheme.”
He also assured the judge that he would be able to provide much more detail in an amended complaint.
The judge took the matter under submission. He set an additional status conference in the sprawling case for August.