Hot Docs: Wells Fargo sued for charging bogus fees

March 15, 2012

Wells Fargo bogus feesAnyone who has been through a real estate closing when a mortgage is involved can tell you that there are a lot of closing costs imposed by the bank issuing the mortgage.

Few actually take the time to go through the individual fees, and even fewer ever question the legitimacy of these costs, instead trusting that the bank isn’t fleecing its customers.

According to a new lawsuit, though, that trust is a bit misplaced.

A California man, Ronald Gutierrez, is suing Wells Fargo because, at his mortgage closing, the bank collected a $65 fee that it wasn’t supposed to.

That fee was the “Tax Service Fee,” which is charged to cover Wells Fargo’s costs of handling payment of real estate taxes assessed on property with a Wells Fargo mortgage.

The Tax Service Fee is a legitimate fee when collected from a borrower for whom Wells Fargo establishes an escrow account and pays real property taxes on that borrower’s behalf.

Wells Fargo collected the fee from Gutierrez at his mortgage closing, regardless of the fact that Gutierrez directly pays his own real property taxes.

$65 may seem like a trivial amount to sue over.

However, according to the complaint, around 10% of borrowers with a Wells Fargo mortgage pay their own real estate taxes, just like Gutierrez.

Hot Doc: Gutierrrez v. Wells Fargo Bank NA

Source: Thomson Reuters News & Insight – National Litigation

With that fact in hand, the lawsuit seeks to be a class action, representing those 10% of borrowers.

As far as Wells Fargo’s legal culpability goes, it’s irrelevant whether the bank actually intended to swindle its customer or whether the bank’s actions were likely the result of negligence – Wells Fargo is still on the hook for this.

That doesn’t mean, though, that this case is going to be an easy win for Gutierrez and the proposed class of plaintiffs.

In fact, this lawsuit may be extremely short-lived.

Why?

Because of a little thing called a binding arbitration clause – a provision that waives a consumer’s right to go to court over any dispute he or she may have with the corporation, and instead compels the consumer to seek redress through a private arbitration organization.

These popular provisions are increasingly used by corporations in just about any consumer contract in existence today, and for good reason: it is far less costly than litigation and the factual details are kept confidential.

In the likely scenario that such a clause was present in any of the contracts signed at Gutierrez’s mortgage closing, the lawsuit could face a serious problem.

Assuming, of course, that the arbitration clause is found to actually be binding by the court (a likely scenario, given the recent judicial trend), then the lawsuit will be punted to a private arbitration firm.

Though there are several small hurdles presented to the lawsuit as a consequence of being transferred to arbitration, the biggest one by far is the result of the Supreme Court’s ruling in AT&T Mobility v. Concepcion, decided last year.

Concepcion invalidated all state laws that allowed class action arbitration, so if Gutierrez’s case does end up in arbitration, he’ll be there by himself (as would all other Wells Fargo customers who have been the victim of the false charge).

Thus, the success of this lawsuit hinges not on Wells Fargo’s legal culpability, but rather on whether a binding arbitration clause was present in the contracts of Gutierrez and other putative members of the lawsuit’s class.

One has to wonder whether a legal system that disregards a party’s fault actually has the interests of justice at heart.