Force-placed insurance burdens homeowners with unnecessary debt while letting banks profit from questionable financial practices and arrangements. It’s no surprise that class action lawsuits have sought to bring some of the sixty-odd banks suspected of forcing insurance on customers to account. Those lawsuits have been met with well-deserved success, too – last month CitiBank agreed to a $110 million settlement over the company’s force-placed insurance policies, while the end of 2013 saw a $22 million settlement between JPMorgan Chase and homeowners who claimed they were forced to carry excessive flood insurance.
As part of the settlement, Wells Fargo reportedly agreed to pay back eleven percent of force-placed insurance premiums.
Last week, Wells Fargo announced that it, along with Assurant Inc., had agreed a settlement to end a class action lawsuit brought by homeowners who claimed they were overcharged for force-placed insurance. The suit was filed in Florida federal court and, though the settlement amount was undisclosed, court documents state that “significant monetary relief’ will be paid to customers.
The settlement comes after Wells Fargo customers accused the bank of charging inflated premiums on its force -placed insurance policies and getting “kickbacks” from insurance companies, such as Assurant. Plaintiffs alleged that the bank allowed insurance companies to issue force-placed insurance policies automatically when a borrower’s voluntary payments fell behind, and that high premiums on the new coverage were then paid by Wells Fargo back to the insurer. Lead plaintiff Ira Marc Fladell added that Assurant would then pay a part of this back to Well Fargo as “commission,” making the entire scheme “highly profitable.”
As part of the settlement, Wells Fargo reportedly agreed to pay back eleven percent of force-placed insurance premiums it received before March 24, 2012. Customers who paid premiums after this date will be able to receive seven percent. The settlement also includes injunctive relief that bans Wells Fargo from accepting force-placed insurance commissions for five years. Assurant will also be prohibited from providing commissions for the same period.
Before the settlement can be approved, it needs to be presented to the court – and this should happen on Thursday.
Force-placed insurance schemes can affect all types of coverage, including:
Federal force-placed insurance regulations require this type of coverage to be “reasonable,” and in cases where banks have imposed excessive or even unnecessary insurance, customers are increasingly challenging banks’ policies in court. In some cases, banks have imposed policies with premiums nearly ten times the cost of a regular policy, in clear violation of regulations.
In the Wells Fargo settlement, the company will now be forced to use the last-known hazard insurance amount as the basis for lender-placed insurance on a homeowner’s loan. It’s good for customers, and ultimately good for the banking industry, bringing about a level of transparency and fairness that was clearly lacking before. Now we just have to hope that other banks still carrying out these illegal policies will be forced to tame their own greed and unethical practices.