In a settlement reached last week, Wells Fargo agreed to repay homeowners up to 11% of their insurance premiums paid before March 24, 2012. The class-action lawsuit was a result of accusations over Wells Fargo’s participation in “force placing” homeowners with one of two insurance companies.
While the exact terms of the settlement were not disclosed to the public, the agreement did state that Wells Fargo and the two participating insurance agencies – Assurant Inc. and QBE Insurance Group – will be providing “significant monetary relief” to those who were impacted.
Forced placement, also known as “lender placed”, insurance purchases are surprisingly more common than one might imagine. In fact, the practice – in theory – is completely legal and one which many of today’s mega lenders engage in.
So why did this lawsuit arise? While the practice may be legal, conflicts often arise when banks opt for more expensive policies or allegedly receive a commission from the insurers.
Although Wells Fargo has settled the claim, they are still denying any guilt or wrongdoing in their actions. Tom Goyda, a spokesperson for Wells Fargo, responded to the settlement by saying, “While we believe the lender-placed insurance purchased on behalf of these borrowers was issued in accordance with the terms of the mortgages and applicable laws, we have decided to settle these cases to avoid protracted litigation. We continue to support our lender-placed insurance services, which provide continuous insurance protection for real property customers when their voluntary insurance lapses.”
Wells Fargo is just one of the many lenders under scrutiny for this practice recently. In a ruling made last week, JPMorgan Chace & Co. and Assurant Inc. settled for $300 million over another suit involving forced placement. Bank of America and Citigroup have also found themselves in similar but separate suits within the past month.
While it is still uncertain whether or not Wells Fargo engaged in any illegal kickbacks, what is known is that the homeowners hurt by this practice will soon be compensated for their losses.
Do you think the practice of “forced placement” is good for the homebuyers you serve? What are your thoughts?
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