Wells Fargo & Co. has agreed to pay $110 million to settle a class-action lawsuit over up to 2 million accounts its employees opened for customers without getting their permission, the bank announced Tuesday.
It's the first private settlement that Wells has reached since the company paid $185 million to federal and California authorities late last year. Authorities said bank employees, driven by high-pressure sales tactics, opened the bank and credit card accounts without customer authorization.
The settlement will include customers who had accounts opened without their permission or were signed up for a product they didn't agree to, going back to Jan. 1, 2009. Wells Fargo says it believes the settlement, which is subject to court approval, will resolve 11 other pending class-action lawsuits filed against it over the accounts.
Notably, Wells said it is waiving its right to take customers into what's known as third-party arbitration, which lets the bank take complaints to a private mediator instead of court. Until Tuesday, Wells had been invoking its right to arbitration in this particular case.
The practice has been a source of controversy for the bank, and customer advocates and politicians had been pressuring Wells to give up its right to use arbitration.
"We believe this is an outstanding result obtained for the benefit of a proposed nationwide class, notwithstanding Wells Fargo's effort to block the class action with an arbitration clause," said Derek Loeser, a partner with Keller Rohrback, one of the firms that filed a class-action suit against the bank.
After paying attorneys' fees, the $110 million will first go to cover any customers' out-of-pocket losses or fees that they may have incurred resulting from the unauthorized accounts. All remaining money will be divided among the all affected customers.
San Francisco-based Wells Fargo has seen sharp declines in new account openings and bank traffic, and it has been working to restore customers' trust since the practices came to light.
The biggest scandal in the bank's history led to the abrupt retirement of its chief executive, John Stumpf. In response to the scandal, Wells has changed its sales practices, ousted other executives and called tens of millions of customers to check on whether they truly opened the accounts in question.
"This agreement is another step in our journey to make things right with customers," Wells Fargo Chief Executive Tim Sloan, who took over in October, said in a statement.
Wells Fargo's board of directors is conducting an investigation into the bank's sales practices, a report that is expected to be out in April ahead of the annual shareholder meeting. The board has already cut bonuses to major executives.