Wells Fargo and HSBC have agreed to end a proposed class action lawsuit before it even begins, agreeing to refund hundreds of thousands of borrowers who may have been overcharged for homeowners insurance.
The proposed class action suit, filed recently in federal court in Miami, attacked a practice known as “lender placed” or “forced place” insurance that become common during the financial crisis. As homeowners fell behind on their homeowners insurance payments, banks were able to “force” a policy on these customers instead in order to protect the banks’ collateral in case of fire or home damage. These new policies were often at a higher rate for the borrower.
Relief from HSBC is capped at $32 million, according to court filings. There is no indication, however, how much Wells Fargo will pay through the terms of the settlement. The court says that HSBC borrowers will be eligible of a refund of 13 percent of the premium billed, while Wells Fargo borrowers are entitled to 13 percent of premiums.
These Wells Fargo and HSBC repayments follow a similar deal from JPMorgan Chase for $300 million, which the Wall Street Journal reports was granted final judicial approval last week. Other filings show that a tentative agreement has also been reached with Bank of America in a similar suit.
The settlements represent another step in the financial institutions’ wish to place litigation stemming from the financial crisis behind them. Wells Fargo announced in January a $591 million settlement with Fannie Mae stemming from failed mortgages, and other financial institutions such as Morgan Stanley and RBS have also recently paid large sums to settle financial crisis-related suits.
However, there is sunlight on the horizon. Wells Fargo announced in February that the company decreased expected litigation expenses by $50 million for 2014. Wells Fargo has also undertaken a two year ethics review to avoid future litigation, while HSBC undertook a risk and compliance reorganization of its own in late 2013.
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