Wells Fargo & Co. Bank Branches Ahead Of Earnings Figures
A Wells Fargo bank branch Photography by Craig Warga — Bloomberg via Getty Images

Wells Fargo Will Pay $50 Million to Settle a Racketeering Lawsuit

Oct 31, 2016

Wells Fargo (wfc) has agreed to pay $50 million to settle a racketeering lawsuit accusing it of overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans.

The proposed settlement, which requires court approval, was disclosed in a filing on Friday in an Oakland, Calif. federal court. If approved, it will resolve nationwide claims that Wells Fargo charged much more than it paid for third-party appraisals, exploiting borrowers who could least afford it and driving them further into default.

Wells Fargo's settlement of the lawsuit comes as the bank is still recoiling from a scandal over sales targets that drove employees to create unauthorized accounts for customers. Multiple lawsuits over those practices are pending.

Spokesman Tom Goyda said Wells Fargo believes its appraisal practices were proper and disagreed with the lawsuit's claims but settled to avoid further litigation.

Plaintiffs' lawyer Roland Tellis said: "We're very pleased to have negotiated a settlement that achieves our litigation goals."

About 250,000 homeowners are covered by the proposed deal, he said.

Mortgage agreements allow banks to charge homeowners for the appraisals if they default on their mortgage loans, but Wells Fargo added large mark-ups to the amounts its third-party vendors charged, the 2012 lawsuit said.

Wells Fargo typically charged $95 to $125 for the type of expedited appraisal at issue, when the actual cost was $50 or less, the complaint said. The charges added hundreds or thousands of dollars to borrower's mortgage loans over time, the lawsuit said.

Customers did not know they had been victimized because the charges were described on statements with cryptic labels such as "other charges," the lawsuit said.

The plaintiffs had sought triple damages under the U.S. Racketeer Influenced and Corrupt Organizations Act. The lawsuit said sending invoices and statements with the fraudulently concealed fees constituted mail and wire fraud sufficient to allege racketeering.

In court filings, lawyers for Wells had called those claims "far-fetched." The U.S. Office of the Comptroller of the Currency and courts have recognized that fees similar to Wells Fargo's can include a profit margin, the lawyers said.

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions