Compliance matters can dominate businesses’ daily affairs and quickly take on lives of their own. Wells Fargo Bank recently avoided a $254 million class action that arguably arose due to an easily-overlooked compliance defect.
In the case, Miller v. Wells Fargo Bank, N.A., a mortgage borrower alleged that her lender, Wells Fargo, failed to use the proper form for describing “post-payment interest.” That term describes interest a lender charges after a loan has been fully paid off–normally, during the month in which the last payment was made. These are no small sums. For example, Wells Fargo supposedly sent faulty notices of post-payment interest to over one million borrowers, and those individuals reportedly paid $254 million in questionable interest charges. Under the consumer’s theory in Miller, the Federal Housing Administration and the U.S Department of Housing & Urban Development require lenders to use specific post-payment-interest notices for FHA-insured loans. Wells Fargo’s failure to use those forms allegedly amounted to contractual breaches.
Like so many class actions, this one died largely because of sheer greed on the part of the plaintiff’s lawyers. The main problem preventing class certification, the Miller court held, was that the plaintiff sought a nationwide class. Those claims would be governed by the laws of each state in which class members resided. Proving uniformity among all those different those laws is nearly always an insurmountable task. And so it was here. The court in Miller also decided that each borrower needed to prove causation–meaning, she had to show that the improper notice misled her in a way that stopped her from taking action to avoid owing post-payment interest.
Other mortgage lenders should not take comfort from Miller. Instead, these sorts of situations often serve as teaching moments for plaintiffs’ lawyers, who come back the next time all the wiser. For example, other lawyers might try to assert similar causes of action, except in single-state classes. In theory, those types of cases would not suffer from the same defects as did the class in Miller. Stay turned for more exciting episodes in this on-going saga.