Wells Fargo Financing Programs Steal from Merchants and Consumers, Class Action Suit Alleges

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A proposed class action has been filed against Wells Fargo & Company and Wells Fargo Bank, National Association over an allegedly illegal financing program made available to retailers.

Wells Fargo offers certain retail businesses financing programs that allow participating merchants to offer to customers purportedly “no interest” financing on a single item. Such programs offered by Wells Fargo go by the names Wells Fargo Automotive Advantage, Wells Fargo Home Furnishings, and Wells Fargo Home Projects, the suit says, with the defendants representing to merchants that their “scheme is thoroughly vetted and perfectly legal,” and that the associated fees are not, in fact, finance charges.

According to the lawsuit, the defendants encourage merchants to build the fees for these financing programs into the regular price of their products for customers paying with credit, representing to buyers that they are paying zero percent interest when using their Wells Fargo credit card. The problem, the case argues, is that these allegedly undisclosed fees are actually hidden finance charges that are unlawful under the federal Truth in Lending Act. From the suit:

"In reality, Wells Fargo’s financing scheme results in the creation of illegal hidden finance charges, and the imposition of double-digit interest rates on consumers. As a consequence of its scheme, Wells Fargo improperly collects and retains monies charged to retail consumers as sales tax – which taxes should not be charged on finance charges –and withholds these monies from merchants."

The lawsuit claims retailers are unaware that these undisclosed fees amount to unlawful finance charges, pointing out that merchants end up unknowingly paying unnecessary sales tax on the amounts. According to the suit, the sales tax for each product sold is calculated using the item’s full price, which includes the undisclosed finance charges that aren’t subject to sales tax. After paying Wells Fargo the agreed-upon finance charge for each item, the lawsuit explains, retailers then remit the full sales tax amount to taxing authorities without any contribution from the defendants.

All told, retailers participating in Wells Fargo’s financing program end up paying more in sales tax than they should, while Wells Fargo allegedly pockets a percentage of the misapplied taxes. From the complaint:

“Because a portion of the amount financed by the consumer is improperly characterized by Defendants as the retail purchase price rather than what it really is – a hidden finance charge – sales tax is improperly charged to the consumer on the hidden finance charge. Unwitting participating retailers remit the entire tax – including the tax on the undisclosed finance charge – to their local taxing authorities. As a consequence, the portion of that sales tax applicable to the hidden finance charge is retained by Defendants and not paid to Named Plaintiffs and Class Members. Thus, Named Plaintiffs and Class Members – who have paid the total sales tax assessed on the transaction to their local taxing authorities – are out this money.”

In sum, the lawsuit alleges that the defendants misrepresent the legality of their financing program to retailers and pocket some of the money that the merchants should have retained from their customers’ purchases.