Amidst the ongoing investigations and litigation issues in the
banking sector by various regulators,
Wells Fargo & Company
) along with two insurance companies -
) and QBE Insurance Group has emerged with a legal settlement. In
another similar lawsuit related to force-placed insurance,
HSBC Holdings plc
) has also agreed to the settlement.
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Wells Fargo and HSBC have decided to settle the lawsuits that
accused the companies of overcharging thousands of homeowners for
force-placed insurances. HSBC is expected to pay an aggregate of
$32 million to settle the class-action lawsuit in Miami, while
the amount to be paid by Wells Fargo and the two insurance
companies was undisclosed.
Force-placed insurance is generally ordered for those homeowners
who refuse to buy insurance themselves. Though the mortgage
agreement gives lenders the right to force-placed insurance, the
plaintiffs accused Wells Fargo and HSBC of providing high premium
insurance coverage to homeowners to earn additional commission.
As per the settlement terms, Wells Fargo and the two insurance
companies will pay 11% cash reimbursements to those class members
who paid entire premiums on the force-placed insurance. On the
other hand, HSBC homeowners will be paid 13% of the entire
Additionally, the agreements, which still require the consent of
court, ordered the banks to stop the collection of commissions
related to force-placed insurance policies over a period of five
to six years from the date of the settlement.
In Feb 2014, Citigroup Inc. agreed to pay an aggregate of $110
million to settle the similar class-action lawsuit in New York.
However, the settlement awaits approval.
JPMorgan Chase & Co.
) and Assurant also agreed to similar settlements and agreed to
pay an aggregate of $300 million, which got approval in Mar 2014.
The class-action lawsuit was filed in Jun 2012 on behalf of
homeowners who were compelled to take insurance policies as of
Regulatory authorities are working hard to put forward a landmark
judgment to terminate such shrewd practices in the future, bring
justice to the sufferers and punish the wrongdoers. While
settlement of such issues will bring reprieve to the banks, this
comes as a huge blow to their financials.
Currently, Wells Fargo carries a Zacks Rank #3 (Hold), while HSBC
carries a Zacks Rank #4 (Sell).