Wells Fargo $94M settlement in limbo as judge doubts lifting the stay

An Ohio federal judge did not lift a pause on a proposed $94 million settlement between Wells Fargo and a group of borrowers who claim the bank placed them into forbearance without their consent during the pandemic's early days. 

Both the plaintiffs and the bank filed a motion for the federal court to once more consider the settlement, which was originally reached in mid-2022, but the judge in response to the motion wrote that neither party articulated "sufficient reasoning to meet the high bar." Instead, the court in Ohio wrote that continued litigation in California's Northern District, closely related to the case, justifies the need to continue the stay to "promote efficiency and fairness." 

The outcome thus far runs counter to what both parties in the settlement wanted, with the class arguing that the currently litigated case in California constitutes "new evidence or intervening authority" requiring the court to consider the proposed settlement in the instant matter. Both parties also mentioned that they are open to a global mediation.

"Wells Fargo does not oppose the plaintiffs' motion for reconsideration and suggested mediation as an alternative," said a spokeswoman from Wells Fargo in a written statement Tuesday. "We were disappointed by the court's decision to stay the case and not consider the proposed settlement, which we believe is fair and in the best interests of our customers."

The 2021 class action lawsuit, which involves roughly 212,000 loans, alleges that Wells pushed borrowers into forbearance after they inquired about pandemic-era options for payment relief but did not agree to move forward with forbearance. 

This hurt their opportunity to borrow and impaired their ability to refinance at low interest rates, the plaintiffs alleged. Under the proposed settlement, which continues to hang in limbo before the court, $35 million would be split evenly among those borrowers who do not opt out, which works out to around $165 per borrower.

"Whether or not the Court grants the recent motion, we anticipate continuing to defend the litigation in California, where a motion to dismiss plaintiffs' claims is pending," Wells Fargo's spokeswoman added.

The case putting a wrench in settlement talks between the plaintiffs and Wells Fargo was filed by a separate group of plaintiffs who allege the bank put them into automatic forbearance without consent.

In May, U.S. District Court Judge James Donato threw out claims against the bank of racketeering, unjust enrichment, implied covenant and certain Real Estate Settlement Procedures Act claims under Regulation X with leave to amend. However, the judge denied Wells Fargo's attempted dismissal of claims related to the Truth in Lending Act and the California Unfair Competition Law.