Wells Fargo has reached a $56.85 million settlement resolving allegations that the bank inaccurately reported mortgage forbearance data to credit agencies during the COVID-19 pandemic, potentially harming the credit scores of thousands of California homeowners. The class action lawsuit centered on the bank’s handling of accounts enrolled in forbearance programs under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The settlement, which received preliminary approval in January 2026, addresses claims that Wells Fargo improperly reported accounts as being “in forbearance” even when borrowers were current on their mortgages and had received CARES Act relief. This misreporting, plaintiffs argued, violated the Fair Credit Reporting Act (FCRA) and created obstacles for homeowners seeking to refinance or obtain new credit during a period of historically low interest rates. The core issue revolves around the accurate reporting of mortgage status during a time of widespread financial hardship and government intervention.
The agreement benefits California residents who had a Wells Fargo mortgage on a property in the state, were “current” on their payments, received a CARES Act forbearance on or after March 27, 2020, and subsequently had their accounts reported as “in forbearance” to a consumer reporting agency. According to court documents, the inaccurate reporting occurred despite the CARES Act’s provisions designed to protect borrowers’ credit during forbearance periods.
Wells Fargo has not admitted any wrongdoing as part of the settlement. However, the $56.85 million will be distributed among eligible class members as a pro-rated share of the net settlement fund, after deductions for legal fees, administrative costs, and service awards to the lead plaintiffs. The exact amount each class member receives will depend on the total number of participants and the final costs associated with administering the settlement.
How the Settlement Works
Unlike many class action settlements, this one does not require affected individuals to file a claim. Those who meet the criteria will automatically receive a payment. Settlement checks, when issued, will have a 90-day cashing window. Any remaining funds after the initial distribution may be used for a second round of payments if sufficient funds remain. If a second distribution isn’t feasible, the remaining money will be donated to Credit Builders Alliance, a nonprofit dedicated to helping low- and moderate-income consumers improve their credit, as reported by Top Class Actions.
The deadline to exclude oneself from the settlement or object to it was March 25, 2026. A final approval hearing is scheduled for April 17, 2026, where a judge will determine whether the settlement is fair and reasonable.
The CARES Act and Credit Reporting
The CARES Act, passed in early 2020 in response to the economic fallout of the COVID-19 pandemic, included provisions allowing mortgage servicers to offer forbearance to borrowers facing financial hardship. Crucially, the law also stipulated that these accounts should continue to be reported as “current” to credit reporting agencies, preventing a negative impact on borrowers’ credit scores. OpenClassActions.org details how Wells Fargo allegedly deviated from these requirements.
Plaintiffs in the lawsuit alleged that Wells Fargo instead reported these accounts as being in forbearance, even when borrowers hadn’t requested it or been formally placed in a forbearance program. This inaccurate reporting, they claimed, damaged credit scores and limited access to financial products at a critical time.
What’s Next
The final approval hearing in April will be a key step in finalizing the settlement and initiating the distribution of funds. Affected homeowners should monitor their mail for potential settlement checks and ensure their contact information is up-to-date with Wells Fargo. This case underscores the importance of accurate credit reporting, particularly during times of economic crisis and government assistance programs. The outcome serves as a reminder to financial institutions of their obligations under the FCRA and the potential consequences of inaccurate reporting.
Have you been affected by inaccurate credit reporting? Share your experience in the comments below. Please also share this article with anyone who might be eligible for the settlement.
Disclaimer: This article provides information for general knowledge and informational purposes only, and does not constitute legal or financial advice.
