By Jonathan Stempel
(Reuters) - Wells Fargo & Co <WFC.N> will pay the U.S. government $108 million to settle a whistleblower lawsuit claiming it charged military veterans hidden fees to refinance their mortgages, and concealed the fees when applying for federal loan guarantees.
The third-largest U.S. bank on Friday said the accord resolved claims that its Interest Rate Reduction Refinance Loans should have been ineligible for guarantees under a U.S. Department of Veterans Affairs loan guaranty program.
Such claims were raised in a lawsuit filed in 2006 and made public in 2011, in which Georgia mortgage brokers Victor Bibby and Brian Donnelly sought to recoup losses that the government, and by extension taxpayers, suffered on guaranteed loans that went into default.
"Wells Fargo made a lot of money passing off charges to the veterans that Wells Fargo was supposed to pay itself," James Butler, a lawyer for the brokers, said in a statement.
Bibby and Donnelly had sued eight lenders to recoup similar losses, and Wells Fargo's settlement is the seventh and largest.
Bank of America Corp <BAC.N>, Citigroup Inc <C.N>, First Tennessee, JPMorgan Chase & Co <JPM.N>, PNC Financial Services Group Inc <PNC.N> and SunTrust Banks Inc <STI.N> settled in 2012 for a combined $161.7 million, the brokers' lawyers said.
"We are committed to serving the financial health and well-being of veterans," Wells Fargo Chief Executive Tim Sloan said in a statement. "Settling this longstanding lawsuit allows us to put the matter behind us and continue to focus on serving customers and rebuilding trust with our stakeholders."
Wells Fargo has in the last 11 months been addressing fallout from other practices, including a scandal over its creation of unauthorized customer accounts, and its charging of borrowers for auto insurance they did not want or need.
On Friday, the bank said it is examining whether it may have imposed unnecessary financial harm on customers through residential mortgage fees, frozen deposit accounts, and "add-on" products such as identity theft protection.
In 2011, Wells Fargo had reached a $10 million settlement in a separate class action lawsuit claiming it imposed excessive closing costs on about 60,000 refinancing loans for veterans.
Friday's settlement is also notable because the government declined to help Bibby and Donnelly pursue their lawsuit under the federal False Claims Act.
Such lawsuits let private whistleblowers sue on the government's behalf and share in recoveries. Government intervention often results in larger settlements.
A lawyer for the eighth lender in the whistleblower case, Mortgage Investors Corp, did not immediately respond to requests for comment.
The case is U.S. ex rel. Bibby et al v Wells Fargo Bank NA et al, U.S. District Court, Northern District of Georgia, No. 06-00547.
(Reporting by Jonathan Stempel in New York; Editing by Bill Rigby and Grant McCool)