Is a lawsuit accusing Washington Mutual Inc. of charging excessive prepayment penalties just another consumer complaint or further evidence of integration problems at the Seattle thrift company?
In a suit filed Tuesday in a Minnesota county court, one borrower in that state and two in Washington claim that Wamu systematically overcharged them and other consumers nationwide tens of millions of dollars.
The plaintiffs are seeking class-action status and damages under the consumer protection and contract laws of Washington, Minnesota, and California, where Wamu's servicing operations are located.
"They have had massive acquisitions, and their acquisitive nature could be contributing to this," said Aaron Biber, an attorney with Mansfield, Tanick & Cohen PA in Minneapolis, who is representing the plaintiffs. "Much of this could be related to Wamu's failure to monitor the contract data" on their loans.
A Wamu spokeswoman said: "While we don't comment on the specifics of pending litigation, Washington Mutual stands by its commitment to adhere to the highest ethical lending and servicing standards."
It has been on a buying spree since the late 1990s and is now the largest loan servicer, with a $723 billion portfolio at the end of last year, and the No. 2 originator, with $306 million of fundings, according to National Mortgage News.
This expansion has brought problems, however. For instance, after it bought Dime Bancorp of New York last year, customers began reporting that Wamu's automated teller machines in the New York area were full of glitches, including inaccurate account information.
In Wamu's far-flung mortgage empire, which contains 13 subsidiaries (mainly acquired companies), loans are made in the branch, loan data are stored in Seattle, and the loans are serviced in California.
"I think their logistics must be very challenging and that, instead of there being any intentional wrongdoing, it is probably a question of an overwhelming confluence of administrative pressures," said Leonard Bernstein, an industry lawyer and partner in the Princeton, N.J., office of Reed Smith LLP.
The plaintiffs say Wamu charged them prepayment penalties that were thousands of dollars higher than their contracts allowed, in addition to $70 of undisclosed administrative fees. All three tried to prepay their loans in 2001 and 2002.
Laurence Platt, a partner at Kirkpatrick & Lockhart LLC in Washington, D.C., disagreed that the alleged overcharges signaled integration problems and dismissed the allegations of excessive administrative fees.
Class-action plaintiffs "routinely challenge the fees charged by servicers that are not explicitly authorized by the loan documents," and such fees are charged for discretionary services, Mr. Platt said.
He also took issue with the borrowers' assertion that they should have received written notification about the administrative charges.
"A borrower does not need a written statement" for such fees, he said. "A borrower can find out what is required to pay off a loan merely by calling a toll-free number or perhaps visiting a lender's Web site."
Mr. Platt said similar cases had been prevalent in the mid-1990s but did not fare well in the courts. "I am surprised that this … has arisen again."
Mr. Biber said that, since filing the suit, he has received calls from borrowers in Florida, New Jersey, and California making similar claims.
