Sunday, November 17, 2013

Wells Fargo Prosecuted for Contempt in Payday Loan Scheme

By Michael Fuller, Portland Trial Attorney

UpdateWells Fargo Pays Over $35,000 to Settle Contempt Charges

UpdateWells Fargo Ordered to Appear on Contempt Charges Related to Payday Loan Scheme

A Hillsboro, Oregon consumer alleges Wells Fargo's predatory payday loan scheme violated the automatic stay and discharge order in his bankruptcy case.

A 30 page document recently filed in federal bankruptcy court in Portland alleges Wells Fargo failed to follow the bankruptcy rules when it permanently seized money from a consumer's checking account without first seeking court approval.

Wells Fargo's Payday Loans


Oregon consumer Antonio Espinosa's bank records indicate Wells Fargo charged over 75% APR through its payday loan scheme.


Espinosa's attorneys argue his bank fees in a given month totaled almost 50% of his net wages.

Alleged Bankruptcy Violations


The docket indicates Espinosa sought chapter 7 bankruptcy protection on May 9, 2013. His bankruptcy schedules listed his Wells Fargo checking account as overdrawn.

Espinosa alleges that when he received his next paycheck after filing bankruptcy, Wells Fargo illegally seized it, in violation of the automatic stay.

The legal memorandum alleges Wells Fargo returned some, but not all, of Espinosa's money.

Espinosa claims Wells Fargo's refusal to return the remaining money is an ongoing violation of the bankruptcy discharge order.

"Setoff" in the Bankruptcy Context


Wells Fargo admits it seized Espinosa's money but claims the seizure was a legal form of "setoff."

Banks are generally allowed to temporarily freeze a consumer's checking account balance while they seek permission from the bankruptcy court to permanently "setoff" the money.

In the wake of the Strumpf decision, it is clear that a bank may place a temporary hold on a debtor’s deposit account pending a motion to lift the automatic stay to exercise valid setoff rights against the debtor, which it should file as quickly as possible. - Read more about the right to setoff in bankruptcy in Christine Pirro's excellent October 24, 2013 post titled, "No Holding Back Strumpf's Administrative Hold." 

The docket in Espinosa's case does not indicate Wells Fargo ever sought permission from the court before permanently seizing the money.

Wells Fargo has yet to file a response.

[Portland Bankruptcy Court Case Number 13-32954-elp7]