‘Forbearance Scam’: Lawsuit Claims Wells Fargo Placed Military Customers’ Mortgages in CARES Act Forbearance without Consent

A scathing lawsuit filed this week against Wells Fargo Bank, N.A. and Wells Fargo & Co. claims the bank placed military customers’ mortgage loans into forbearance during the COVID-19 pandemic without consent.

The 39-page case out of Washington alleges that although the measure was made available as part of Wells Fargo’s COVID-19 relief program, the bank unwittingly enrolled customers into the program, with many not realizing their loans were in forbearance until they tried to apply for credit or refinance their loans.

Though the bank allegedly harmed many of its borrowers through its alleged conduct, the damages against military members are “especially egregious” given these individuals are granted special protections under various state and federal laws, and Wells Fargo itself promised military customers a “dedicated team” of financial professionals to provide extra “attention” and “support,” the suit argues.

“Instead of living up to its obligation to military borrowers under the law and the bank’s promises, Wells Fargo found a way to profit off these military borrowers by wrongfully enrolling them into a forbearance program without their informed and legal consent that would only increase their financial hardship,” the complaint charges.

Per the case, Wells Fargo “twisted a national crisis and a government relief program” into a way to bolster its own profits at the expense of both military and non-military mortgage borrowers.

CARES Act Forbearance Triggered by “Click of a Button,” Lawsuit Says

The alleged “forbearance scam” perpetrated by Wells Fargo began after the CARES Act made mortgage relief available to those experiencing financial hardship due to the COVID-19 crisis.

Under the Act, homeowners with government-sponsored enterprise (GSE) loans could request a 180-day period of forbearance, with the option for another 180-day extension, on their mortgage by submitting a request to their loan servicer and affirming they were experiencing financial hardship during the pandemic.

The CARES Act, not to mention relevant laws governing the servicing of mortgage loans, made it “abundantly clear” that the forbearance program was voluntary and could only be initiated at the borrower’s request, the case stresses.

Wells Fargo’s system, however, was like a “hair trigger,” the lawsuit alleges, and automatically placed loans into forbearance when borrowers accessed a link on the bank’s website regarding its COVID-19 relief program. Per the suit, forbearance was essentially initiated with “the click of a button” that made no mention of the term.

Indeed, Wells Fargo has not denied these allegations, the case says. A Wells Fargo spokesperson reportedly admitted that “[i]n the spirit of providing assistance, we may have misinterpreted customers’ intentions in a small number of cases.”

This was an understatement, according to the lawsuit, as Wells Fargo has reported receiving at least 1,600 complaints of unwanted forbearances amid the COVID-19 crisis. In fact, in response to a motion for preliminary injunction in another proposed class action filed back in November 2020, Wells Fargo agreed, among other measures, not to activate COVID-19-related mortgage forbearance unless a customer requests it.

Lawsuit Says Wells Fargo Disregarded “Special Protections” Granted to Military Borrowers

Per the suit, Wells Fargo’s conduct is especially egregious when it comes to the bank’s military loan borrowers, who should have received extra care and disclosures as required by law.

The case explains that while the Servicemembers Civil Relief Act and the U.S. Department of Veterans Affairs provide “special legal protections” to military mortgage loan borrowers, Wells Fargo courts military members with additional promises of support, dedicated services and protections that “go beyond” the laws’ requirements.

Among these promises, the suit says, are assurances that military customers will be provided with a “dedicated team” of financial professionals, “expanded mortgage benefits,” and specialists that are “here to support you.”

The lawsuit claims, however, that Wells Fargo failed to meet even the bare minimum required by law when it came to providing support and assistance to military mortgage borrowers. Military customers, like the bank’s non-military customers, had their loans placed into forbearance with either no notice at all or “woefully inadequate” notice, the suit says, and some customers had no idea their mortgages were in forbearance until they tried to apply for credit or refinance their loan and were denied, according to the case.

Even further, the lawsuit alleges, once military members’ loans were in forbearance, Wells Fargo “continued to act negligently and unlawfully” by failing to properly apply borrowers’ payments, report these payments to the appropriate credit bureaus, and provide accurate and legally sufficient statements.

Per the case, military borrowers were financially harmed by Wells Fargo’s improper placement of their loans into forbearance given they were unable to take advantage of “historically low” interest rates that became available as a result of the pandemic and related economic crisis. As explained in the lawsuit, forbearance prohibits borrowers from being able to obtain credit and refinance their homes “for many months” or even years. Moreover, borrowers were forced to “deal with the difficult situation” of trying to remove their mortgages from a program they never wanted in the first place, the case says.

Wells Fargo, on the other hand, reaped significant profits from its “forbearance scam,” the lawsuit says. Per the case, Wells Fargo receives financial compensation for each loan it places into forbearance and “directly profits” from customers’ inability to refinance because it allows the bank to maintain their loans at above-market rates. Such was the plaintiff’s experience, according to the complaint.

The Plaintiff’s Experience

The plaintiff, a veteran whose military career spanned over a decade, says he inquired with Wells Fargo in late March 2020 about payment deferment options for his mortgage loan due to concerns about his financial situation amid the pandemic.

Wells Fargo, via email, merely encouraged the plaintiff to “view the self-service options available for your account on wellsfargo.com or through the Wells Fargo Mobile app,” the suit says. The bank’s response offered no support for the plaintiff, who Wells Fargo knew was a military member, and failed to explain his rights as a military borrower or connect him to a “dedicated team” to assist him with attaining sustainable homeownership, according to the case.

The plaintiff says he then logged into his Wells Fargo account sometime between April 2 and April 8, 2020. During his website visit, the plaintiff “did not knowingly agree to a forbearance,” especially given his former experience as a bank employee would have deterred him from signing up for the agreement and its significant consequences, the suit says. Nevertheless, the website visit allegedly caused the plaintiff’s loan to be placed into forbearance.

Per the case, the plaintiff never found out his loan was in forbearance until he attempted to refinance his mortgage in late July 2020 and was denied. Although the plaintiff resumed payments after learning his mortgage was “wrongfully placed” in forbearance, Wells Fargo failed to properly apply the payments and report them to credit agencies, the suit says. As a result, the lawsuit relays, the plaintiff’s credit score took a significant hit, and he’s been unable to qualify for the best refinancing rates.

Who Does the Lawsuit Look to Cover?

The case looks to represent all military customers with a mortgage loan serviced by Wells Fargo whose mortgages were placed into the bank’s COVID-19 mortgage forbearance program without their informed and lawful consent.

The suit also proposes classes of non-military customers in the U.S. and Ohio customers who fall into the above category.

How Do I Join the Lawsuit?

As with most class actions, there’s nothing you need to do to join the lawsuit, at least for now. If the case moves forward and settles, anyone who falls into the aforementioned categories, i.e., the “class members,” should receive notice of the settlement with instructions on how to claim whatever compensation the court deems just.

Find out more about the process here.

How Can I Keep Up with the Case’s Progress?

Keep in mind that it often takes months, or even years, for a lawsuit to be resolved. If the case is settled, we’ll likely cover it here on our site and in our newsletter, where you can find the latest updates about class action news and settlements.

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