A San Francisco federal judge is leaning toward rejecting some of the terms of a $142-million settlement aimed at ending a bevvy of class-action lawsuits against Wells Fargo & Co. over its sham accounts scandal.
That figure is far more than the 2.1 million accounts the bank had estimated when it reached a $185-million settlement with regulators in September.
Chhabria, in a request for additional information, questioned whether the parties have the ability to accurately estimate the number of bank customers who may be eligible to participate in the settlement.
"If so, what are those estimates and how were they reached? If not, why not?" asked Chhabria, who will preside over a hearing on the proposed settlement Thursday.
The estimate of 2.1 million was based on a review by the bank of accounts created between May 2011 and July 2015, while the new figure is an estimate of unauthorized accounts created between 2002 and this year.
The higher figure was predicated on a recent internal investigation by the bank that concluded the practice of opening unauthorized accounts may have started as early as 2002.
Bank spokesman Ancel Martinez has called the higher figure an unverified estimate that is "based on a hypothetical scenario."
Chhabria has other issues with the proposed settlement too, suggesting that some terms will have to be changed.
For instance, attorneys representing clients in a separate class-action lawsuit over improper bank overdraft practices argued in a filing this week that the terms of the unauthorized accounts settlement could force their clients to give up their claims against the bank.
Chhabria said he thinks the settlement agreement should be rewritten to make clear that the overdraft claims are separate and not covered by the unauthorized accounts settlement.
Alexandra Lahav, a professor at the University of Connecticut School of Law, said Chhabria's demand for additional information from the parties suggests there's at least a chance the settlement could be in trouble.
"I think the judge is signaling that he sees problems," Lahav said. "This sometimes happens and the parties fix the settlement. However, depending on the answers the lawyers give, he may reject the settlement."
Attorneys for the plaintiffs did not respond to a request for comment. Martinez said the bank supports the settlement as is.
"We believe this agreement is an important step in our journey to make things right for our customers and rebuild trust," he said. "We are reviewing the questions from the court and preparing a response."