SAN FRANCISCO – The U.S. District Court for the Northern District of California recently granted preliminary approval to a settlement in a class-action lawsuit claiming Wells Fargo Bank unlawfully collected post-payment interest on mortgages insured by the Federal Housing Administration (FHA).
In the Aug. 22 filing, U.S. District Judge Haywood Gilliam Jr. granted preliminary approval in the case in which lead plaintiff Vana Fowler alleged that Wells Fargo charged interest on mortgage loans insured by the FHA without telling the borrowers that it was doing so.
The settlement order said under Housing and Urban Development regulations, “banks may collect interest after a borrower repays the full principal on his or her FHA-insured loan if the borrower’s repayment is made after the first of the month,” meaning “banks may collect interest from the date the loan is paid off through the end of the month.”
The statute also specifies that before banks may collect this post-payment interest, "they must provide notice to borrowers with ‘a form approved by the (FHA) commissioner.’”
In addition to allegations that Wells Fargo did not properly notify borrowers that the interest was being charged, Fowler claims the bank “used its own unauthorized form that ‘does not fairly disclose the terms under which (the defendant) can collect post-payment interest or properly explain how borrowers can avoid such charges.’”
Under the settlement, a $30 million fund will be established. Administration costs, incentive awards and attorneys’ fees and expenses will be deducted from the fund.
Class members who do not want to join the settlement must opt out at least 30 days before the final settlement hearing.
Wells Fargo has also agreed to reimburse the plaintiffs for attorneys’ fees equal to no more than 25 percent of the fund amount and up to $70,000 in costs.
Gilliam ordered the settlement parties to come up with a schedule detailing deadlines for providing notices, opting out of the agreement and applying for payment of attorneys’ fees and costs, as well as to agree on a date for the final hearing on approval of the settlement.