Banking giant Wells Fargo & Co. will pay $142 million in a class-action settlement to customers whose credit scores have been hurt by its employees’ much-maligned practices of creating fake accounts at bank branches.
The settlement, approved by a California judge and announced Sunday, calls for paying compensation if a customer’s credit score dropped because of a fake account and the customer opened a credit account with any lender between May 1, 2002 and April 20 this year.
The company said per-customer payment amounts have not been determined. But the payments will depend on "how much the credit score declined, the type and size of the subsequent authorized credit product, and other factors," it said. Customers will be notified in the next three months with details on how to start a claim.
It's possible — but "unlikely" — that Wells Fargo could pay more than $142 million. But if that happens, the company will contribute additional funds to the settlement, it said.
The settlement is the latest attempt by Wells Fargo to shake off the fake-account scandal that has dogged the company for years and led to a management shake-up last year. To meet aggressive sales targets, Wells Fargo bank employees opened up to 2.1 million accounts — for credit cards, checking and savings accounts and other financial products — without customers' permission for years, going back as far as 2002.
The bank's earnings and revenue climbed during the years of fake-accounts. But its employees' actions triggered plenty of customer complaints. Spurred in part by a December 2013 report on the practices by the Los Angeles Times, federal and state regulators fined Wells Fargo $185 million last year.
The settlement of the case — Jabbari v. Wells Fargo & Co., et al. — was approved on July 8 by the U.S. District Court for the Northern District of California.
Wells Fargo still faces 10 other class action lawsuits and states' continuing investigations of the fake-account practices. But the settlement will "resolve substantially all claims" in the other pending class actions, it said.
To dig out from the scandal and to assuage regulators' demands, Wells Fargo has started several customer "remediation" initiatives. It has already paid $3.26 million in remediation for fake accounts created between May 2011 to mid-2015, as well as $1.8 million to customers starting September last year.
“We are pleased that the court found the settlement to be fair, reasonable and adequate,” Wells Fargo CEO Tim Sloan said in a statement. “It further ensures each customer impacted by an improper retail sales practice has every opportunity for remediation.”