Court Approves $30 Million Settlement in FHA “Post-Payment Interest” Class Action

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The U.S. District Court for the Northern District of California recently approved a class action settlement between borrowers and a large national bank for the alleged unlawful and unfair collection of post-payment interest on FHA loans.

In Fowler v. Wells Fargo Bank, N.A., No. 17-cv-02092, plaintiffs alleged that the bank collected post-payment interest on their loans without providing the proper notice in compliance with HUD regulations.  According to HUD regulations, banks may collect interest after a borrower repays the full principal on his or her FHA-insured loan if the final payment is made after the first of the month, provided a bank discloses to the borrower this ability using a form approved by the FHA Commissioner.  The bank allegedly used its own unauthorized form that (1) did not fairly disclose the terms by which the bank could collect the post-payment interest and (2) suggested that borrowers could not avoid paying the post-payment interest.  

The district court granted the motion for final approval of the class action settlement.  The approved settlement included a net settlement fund consisting of $30 million, minus the costs of settlement administration, incentive awards, and attorneys’ fees and expenses.  Plaintiffs estimated that members of the class will recover between $25 and $33.  The Court approved attorneys’ fees of 25% of the total fund, or $7.5 million, costs in the amount of $70,000, and incentive awards to the two named plaintiffs totaling $12,500. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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