Wells Fargo 2015 Annual Report Download - page 208

Note 15: Legal Actions
Wells Fargo and certain of our subsidiaries are involved in a
number of judicial, regulatory and arbitration proceedings
concerning matters arising from the conduct of our business
activities. These proceedings include actions brought against
Wells Fargo and/or our subsidiaries with respect to corporate
related matters and transactions in which Wells Fargo and/or
our subsidiaries were involved. In addition, Wells Fargo and our
subsidiaries may be requested to provide information or
otherwise cooperate with government authorities in the conduct
of investigations of other persons or industry groups.
Although there can be no assurance as to the ultimate
outcome, Wells Fargo and/or our subsidiaries have generally
denied, or believe we have a meritorious defense and will deny,
liability in all significant litigation pending against us, including
the matters described below, and we intend to defend vigorously
each case, other than matters we describe as having settled.
Reserves are established for legal claims when payments
associated with the claims become probable and the costs can be
reasonably estimated. The actual costs of resolving legal claims
may be substantially higher or lower than the amounts reserved
for those claims.
FHA INSURANCE LITIGATION On October 9, 2012, the United
States filed a complaint, captioned United States of America v.
Wells Fargo Bank, N.A., in the U.S. District Court for the
Southern District of New York. The complaint makes claims with
respect to Wells Fargo's Federal Housing Administration (FHA)
lending program for the period 2001 to 2010. The complaint
alleges, among other allegations, that Wells Fargo improperly
certified certain FHA mortgage loans for United States
Department of Housing and Urban Development (HUD)
insurance that did not qualify for the program, and therefore
Wells Fargo should not have received insurance proceeds from
HUD when some of the loans later defaulted. The complaint
further alleges Wells Fargo knew some of the mortgages did not
qualify for insurance and did not disclose the deficiencies to
HUD before making insurance claims. On February 1, 2016,
Wells Fargo reached an agreement in principle with the United
States Department of Justice, the United States Attorney’s Office
for the Southern District of New York, the United States
Attorney’s Office for the Northern District of California, and
HUD (collectively, the Federal Government) to pay $1.2 billion
to resolve the complaint’s allegations, as well as other potential
civil claims relating to Wells Fargo’s FHA lending activities for
other periods. Although Wells Fargo and the Federal
Government have reached an agreement in principle to resolve
these matters, there can be no assurance that Wells Fargo and
the Federal Government will agree on the final documentation of
the settlement.
INTERCHANGE LITIGATION Wells Fargo Bank, N.A.,
Wells Fargo & Company, Wachovia Bank, N.A. and Wachovia
Corporation are named as defendants, separately or in
combination, in putative class actions filed on behalf of a
plaintiff class of merchants and in individual actions brought by
individual merchants with regard to the interchange fees
associated with Visa and MasterCard payment card transactions.
These actions have been consolidated in the U.S. District Court
for the Eastern District of New York. Visa, MasterCard and
several banks and bank holding companies are named as
defendants in various of these actions. The amended and
consolidated complaint asserts claims against defendants based
on alleged violations of federal and state antitrust laws and seeks
damages, as well as injunctive relief. Plaintiff merchants allege
that Visa, MasterCard and payment card issuing banks
unlawfully colluded to set interchange rates. Plaintiffs also allege
that enforcement of certain Visa and MasterCard rules and
alleged tying and bundling of services offered to merchants are
anticompetitive. Wells Fargo and Wachovia, along with other
defendants and entities, are parties to Loss and Judgment
Sharing Agreements, which provide that they, along with other
entities, will share, based on a formula, in any losses from the
Interchange Litigation. On July 13, 2012, Visa, MasterCard and
the financial institution defendants, including Wells Fargo,
signed a memorandum of understanding with plaintiff
merchants to resolve the consolidated class actions and reached
a separate settlement in principle of the consolidated individual
actions. The settlement payments to be made by all defendants
in the consolidated class and individual actions total
approximately $6.6 billion before reductions applicable to
certain merchants opting out of the settlement. The class
settlement also provided for the distribution to class merchants
of 10 basis points of default interchange across all credit rate
categories for a period of eight consecutive months. The District
Court granted final approval of the settlement, which has been
appealed to the Second Circuit Court of Appeals by settlement
objector merchants. Other merchants have opted out of the
settlement and are pursuing several individual actions. Several
merchants have now filed a motion to vacate the class
settlement.
MORTGAGE RELATED REGULATORY INVESTIGATIONS
Federal and state government agencies, including the United
States Department of Justice, continue investigations or
examinations of certain mortgage related practices of
Wells Fargo and predecessor institutions. Wells Fargo, for itself
and for predecessor institutions, has responded, and continues
to respond, to requests from these agencies seeking information
regarding the origination, underwriting and securitization of
residential mortgages, including sub-prime mortgages.
ORDER OF POSTING LITIGATION A series of putative class
actions have been filed against Wachovia Bank, N.A. and
Wells Fargo Bank, N.A., as well as many other banks,
challenging the "high to low" order in which the banks post debit
card transactions to consumer deposit accounts. There are
currently several such cases pending against Wells Fargo Bank
(including the Wachovia Bank cases to which Wells Fargo
succeeded), most of which have been consolidated in multi-
district litigation proceedings (the "MDL proceedings") in the
U.S. District Court for the Southern District of Florida. The court
in the MDL proceedings has certified a class of putative plaintiffs
and Wells Fargo has moved to compel arbitration of the claims
of unnamed class members.
On August 10, 2010, the U.S. District Court for the Northern
District of California issued an order in Gutierrez v. Wells Fargo
Bank, N.A., a case that was not consolidated in the MDL
proceedings described above, enjoining the bank’s use of the
high to low posting method for debit card transactions with
respect to the plaintiff class of California depositors, directing
the bank to establish a different posting methodology and
ordering remediation of approximately $203 million. On
October 26, 2010, a final judgment was entered in Gutierrez.
Following appellate proceedings which reversed in part and
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