SAN FRANCISCO (CN) – Wells Fargo must guarantee full compensation and credit history repairs for an estimated 2.73 million victims of its sham accounts scandal before a judge will approve a proposed $142 million settlement.
U.S. District Judge Vince Chhabria laid out his conditions for approving the deal in a ruling Wednesday night, less than one week after several lawyers urged him to reject the settlement during a May 20 hearing.
The class action settlement in Jabbari v. Wells Fargo would release the bank from liability over its employees opening an estimated 3.5 million unauthorized accounts and lines of credit from 2002 to 2017 to meet aggressive sales goals.
A parade of attorneys fighting separate but related class actions across the nation denounced the deal as letting the bank off too easy and failing to factor in claims like identity theft and privacy violations against Wells Fargo.
In a three-page ruling, Chhabria said Wells Fargo must agree to pledge additional funds if $142 million falls short of fully compensating victims.
Chhabria insisted on that concession, despite finding that $142 million would likely be more than enough to repay an estimated 2.73 million class members who were charged about $25 each in phony account fees. The judge said he was still unsure about the full cost and magnitude of victims’ credit-related injuries.
Wells Fargo must provide more details on how it will repair damaged credit histories and compensate victims for higher borrowing costs. The parties must also allow the judge the option of appointing a special settlement master to evaluate the adequacy of the bank’s plan to compensate victims and repair their credit scores. The judge added he would also thoroughly scrutinize that plan before granting final approval.
Additionally, Chhabria asked that victims be given an opportunity to describe in detail any unique credit-related injuries they suffered when filing claims, and that they be given more time to file those claims.
Class members should also be allowed to file objections to the settlement or opt out online, the judge said.
Turning to the bank’s release of liability, Chhabria said the bank should only be released from liability on claims based on the “identical factual predicate.” The release should clearly exclude claims for violating the Telephone Consumer Protection Act, based on debt collection calls for unauthorized accounts.
The judge also urged the parties to consider using an email blast to notify all current and former Wells Fargo customers about the settlement.
Wells Fargo and the plaintiffs have until June 8 to file a revised settlement agreement for preliminary approval.
Attorneys for Wells Fargo and the class did not immediately return phone calls seeking comment Thursday afternoon.
In September 2016, the bank said it was getting rid of its sales goals for credit cards and other banking products, after federal regulators slammed it with $185 million in fines.
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 is expected to cost the bank billions more in future lost revenue.
A consulting firm concluded in October 2016 that the bank could lose $212 billion in deposits and $8 billion in revenue over the next 18 months due to the scandal, according to Forbes.
Wells Fargo announced in March that it opened 42 percent fewer checking accounts and had 55 percent fewer credit card applications in February this year, compared to February 2016.
The bank is represented by David Fry of Munger Tolles & Olson in San Francisco. The class is represented by Derek Loeser of Keller Rohrback in Seattle.