Troubled Wells Fargo has difficulty understanding consent.
Last summer the bank was found to have pressured quota-bound employees into creating more than a million phony bank accounts for customers without their knowledge. The feds made an example of it, demanding fines of $185 million. CEO John Stumpf lost his job.
Now, a new class action suit alleges that during the same years Wells Fargo was busy running its fake account hustle, it was also making “stealth modifications” to mortgage plans without customers’ permission. The changes would appear to reduce monthly payments, while drastically increasing the length of the loans so that debtors would eventually have to pay more.
The lead plaintiffs on the lawsuit, first reported by the New York Times, are North Carolina couple Christopher and Allison Cotton.
According to the lawsuit, the Cottons took out a 20-year mortgage loan from Wells Fargo starting in 2010. Four years later, they filed for bankruptcy.
Their court-ordered bankruptcy plan proposed they pay $3,600 a month for five years. The Cottons and their attorney agreed that this would be a feasible strategy for reorganizing their finances.
Then, Wells Fargo began to enroll the Cottons in “trial loan modifications” that reduced their monthly payments to $1,270 in January 2016, according to the suit. That rate would have resulted in a new 40-year loan term, and more than $129,000 in additional interest.
The lawsuit claims that Wells Fargo went about this by sending the Cottons an apparent form letter implying they could lose their home if they didn’t accept changes to their payment plan. The Cottons did not bite, and made no response.
Wells Fargo allegedly sent another letter in June 2016, proposing another payment modification. This time, the Cottons’ attorney asked the bank to explain what it was doing.
In-house counsel Shannon Hoff responded, according to an email included in the lawsuit, that Wells Fargo routinely looks over its mortgage accounts to see if people would qualify for loan adjustments. Wells Fargo would then send a letter indicating that if a customer went on to make three reduced payments, that would signal their approval of a permanent change.
The Cottons' attorney said his clients were not interested. He also chastised Wells Fargo for the apparent contradiction between their practices and the notices sent to the Cottons, which, according to the lawsuit, indicated they had to affirmatively agree to be placed on any trial loan modifications.
Wells Fargo complied and withdrew the changes. But in October 2016, it filed yet another payment change notice, seeking to reduce the Cottons’ monthly mortgage payment to $1,251, according to the suit.
“The clandestine manner in which Wells Fargo forces debtors into uninvited and often unconscionable loan modifications abuses the bankruptcy process by denying debtors’ counsel an opportunity to evaluate the reasonableness of the proposed loan modification or advise their clients about the effects of such modifications,” the lawsuit states.
Spokesman Tom Goyda told the New York Times that Wells Fargo denied the allegations.
“Modifications help customers stay in their homes when they encounter financial challenges,” he said, “and we have used them to help more than 1 million families since the beginning of 2009.”