Class Action

Wells Fargo UCL Class Action Defense Cases–Puentes v. Wells Fargo: California Court Affirms Summary Judgment In Favor Of Wells Fargo In UCL Class Action Holding Charging Monthly (Rather Than Daily) Interest On Loans Was Not Unlawful

By Michael J. Hassen

Trial Court Properly Granted Defense Summary Judgment Motion in Class Action Alleging Bank Violated California’s Unfair Competition Law (UCL) by Calculating Interest on a Monthly rather than Daily Basis because Federal Law Permits this Method, it is Consistent with Industry Conduct and it is Required for Sale of Loans on the Secondary Market California Court Holds

Plaintiffs filed a class action against their mortgage lender, Wells Fargo, alleging violations of California’s unfair competition law (UCL) based on the fact that it failed to charge monthly interest based on the number of days in the month, and failed to disclose that it treated each month as one-twelfth of the year, regardless of the number of days in the month. Puentes v. Wells Fargo Home Mortgage, Inc., ___ Cal.App.4th ___, 72 Cal.Rptr.3d 903, 906 (Cal.App. 2008). The class action complaint alleged that plaintiffs obtained a 30-year fixed-rate mortgage from Wells Fargo, evidenced by a promissory note on a multi-state form approved by Fannie Mae and Freddie Mac; the promissory note provided for equal monthly payments and stated, “Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay interest at a yearly rate of 6.500 [percent].” Id. The class action further alleged that plaintiffs paid off the loan only seven months later, but, that “[i]n determining the amount of interest owed to retire the obligation, Wells Fargo treated February, as it did for each of the previous full months of the loan, as one-twelfth of a year, or approximately 30.4 days.” Id. After the trial court granted plaintiffs motion for class action treatment of the lawsuit, defense attorneys moved for summary judgment arguing that “[the] interest calculation was consistent with the terms of the note, federal regulations and the uniform nationwide practice of the mortgage industry, and thus as a matter of law cannot constitute an unfair business practice under the UCL.” Id., at 907. The trial court granted the motion, and the Court of Appeal affirmed.

The multi-state form used by Wells Fargo had been approved by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Company (Freddie Mac). Puentes, at 906. In addition to the disclosures in the promissory note, the Truth in Lending Act (TILA) disclosure stated “[i]f you pay off your loan early you will not receive a refund of the part of the finance charge that you have already paid.” Id. Nonetheless, plaintiffs alleged that they and the putative class members “paid Wells Fargo ‘interest for non-existent days ... in the year of early pay off of their residential mortgage loan.’” Id., at 906-07. Based on their view that the bank’s formulation “resulted in charges for 182.5 days during the five full months of the loan instead of the actual 181 days,” they alleged that Wells Fargo “overcharged them $71.98 in interest for days not actually in the loan period, thereby breaching the promissory note by imposing a yearly interest rate of approximately 6.549 percent.” Id., at 907. The trial court granted the defense motion for summary judgment based on federal preemption, and on its finding that the bank’s interest calculation was reasonable under the terms of the note and “comported with industry standards and was not an unfair business practice.” Id.

Full post as published by Class Action Defense Blog on April 14, 2008 (boomark / email).