Judge approves $100M borrowers fund, $85M settlement in Wells Fargo diversity quota scandal

(CN) — A federal judge granted final approval of settlement agreements for two cases against Wells Fargo on Tuesday in relation to claims it conducted fake interviews to meet diversity requirements in 2022.

The lawsuits both arose from a New York Times article that revealed the bank was conducting job interviews with women and people of color for positions that paid more than $100,000 per year in an effort to diversify the upper echelons of its workforce. However, they never intended to offer the candidates a position, the newspaper reported.

The reporting caused Wells Fargo shares to drop in value, and investors filed subsequent securities lawsuits. Shareholders also filed derivative lawsuits that accused directors and officers of breaching fiduciary duties.

U.S. District Judge Trina Thompson heard settlements for both types of lawsuits on Tuesday.

Thompson, a Joe Biden appointee, approved a settlement agreement between Wells Fargo and its shareholders that established a $100 million borrowers program for people with low to moderate income.

The lawsuit, In re Wells Fargo & Company Hiring Practices Derivative Litigation, was a win-win for the bank and its shareholders, attorney Marlon Kimpson, representing the plaintiffs, told the court. The litigation would add to the bank’s efforts to create a more inclusive housing system by helping borrowers in low- to moderate-income census tracts, Kimpson said.

“Wells Fargo has some unsavory history with certain communities and demographic groups,” he said. “Because of this negative history, Wells Fargo has had a significant hill to climb to regain the trust of those communities. The $100 million borrowers assistance fund is a significant step in that direction. It will help improve Wells Fargo’s reputation.”

The borrowers fund will go toward down payment assistance and closing cost assistance. Borrowers can receive up to $10,000 for down payment assistance as well as up to $5,000 for closing costs.

“Home ownership, your honor, is the pillar of the American Dream, bringing financial opportunity to consumers and stability for communities nationwide,” Kimpson told the court. “Owning a home is also one of the best pathways to wealth creation, providing families with a foundation for improving their financial standing across generations. By empowering Americans to achieve their dream, this borrowing program will bring prospective mortgage customers to Wells Fargo and strengthen the company’s relationship with them.”

Additionally, the program would include fees and interest that would also benefit the bank, Kimpson said.

Thompson applauded the establishment of the program from both parties, describing it as the gold standard for settlements.

“This program provides an exceptional amount of hope for a lot of people who did not think that the American Dream would be available to them under these times,” Thompson said. “It may be the model for other institutions to follow. It may have its own synergy as we move through what can be characterized as a very difficult time for those who don’t have the type of means to place a down payment on a home."

Although the derivative cases against Wells Fargo were in relation to discriminatory hiring practices, one of them was related to discriminatory lending before it was consolidated.

Lesley Weaver, an attorney representing plaintiffs in both cases against Wells Fargo, said the settlement was unusual in how far it went to create meaningful results.

“Usually, in a derivative case, the kind of recovery we can hope to get goes back to the corporation alone — hopefully, we get something significant,” Weaver told the judge. “The outcome here is extraordinary because its reach is beyond helping the corporation.”

In the other settlement hearing, Thompson also approved an $85 million settlement against Wells Fargo that was filed by investors. Plaintiffs’ attorneys in the class action requested about $21.2 million to cover fees, as well as an additional $3.5 million for litigation costs. The remaining $59 million will be disbursed to class members.

Compensation will be available for class members who lost money due to the fluctuations in the bank’s stock prices during the class period.

Wells Fargo attorney Brandon Cullen did not comment on either settlement except to agree to its terms. A Wells Fargo corporate spokesperson said the company was “pleased to have reached a settlement.”

Thompson praised the attorneys in both cases for their professionalism in reaching the settlement agreements.