Security & Fraud

Wells Fargo To Have Its Day In Court Concerning Defective Mortgages

A federal judge ruled that Wells Fargo will face litigation for breach of contract and conflict of interest claims related to risky residential mortgage-backed securities, Reuters reported.

The plaintiffs, which include a few dozen funds from BlackRock, Pacific Investment Management Co., Prudential Financial and TIAA-CREF, may pursue holding Wells Fargo responsible for billions of dollars in claimed investor losses.

The case against Well Fargo alleges that the bank failed as a trustee overseeing the defective mortgages.

U.S. District Judge Katherine Polk Failla in Manhattan dismissed claims alleging Wells Fargo violated a New York law governing mortgage trusts and that the financial institution was acting in general negligence. However, the plaintiff may still claim that Wells Fargo breached fiduciary duty and due care.

“It is plaintiffs’ contention that such allegations go far beyond many other RMBS trustee complaints, which themselves have been found sufficient to state a claim,” Failla wrote in an 80-page decision covering five lawsuits. “The court agrees.”

Earlier this week, Wells Fargo made the decision to avoid a court battle over its fake accounts scandal by reaching a settlement agreement with customers whose personal information their staff used to set up fake bank and credit card accounts.

The latest payout comes after Wells had already been dinged with $185 million in fines and penalties for the 2 million or so deposit and card accounts Wells Fargo employees set up for customers without their permission.

The deal, announced Tuesday by the bank and in a court filing, brings a close to the dozens of lawsuits filed across the country.  To go through, a judge must finalize the agreement.

“We want to ensure that each customer impacted by our sales practices issue has every opportunity for remediation, and this agreement presents an additional option,” Wells Fargo Chief Executive Officer Tim Sloan said in a statement. “We continue to encourage customers to contact us directly so that we can act quickly to refund fees and address any concerns.”

But federal officials, notably, are still taking shots at Wells.

The Office of the Comptroller of the Currency recently accused Wells Fargo of an “extensive and pervasive pattern” of discriminatory and illegal lending practices for years. Notably, most of the cases referred to by the OCC had already been announced, and in some cases were over a decade old.


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