Wells Fargo to Pay $85M to Settle Loan Allegations
San Francisco-based Wells Fargo & Company has agreed to pay an $85 million fine to settle claims made by the Federal Reserve regarding its consumer-lending practices.
According to the Federal Reserve, sales personnel at Wells Fargo Financial-a non-bank subsidiary of Wells Fargo that is no longer operating-steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers.
Separately, Wells Fargo Financial sales personnel allegedly falsified information about borrowers' incomes to make it appear that they qualified for loans when they didn't based on their actual incomes.
In addition to the $85 million fine that Wells Fargo must pay, the company will need to compensate borrowers that were affected by its practices.
According to the Federal Reserve, the fine is the largest it has assessed in a consumer-protection enforcement action and is the first formal enforcement action to address the practice of steering of borrowers into high-cost, subprime loans.
Wells Fargo is also required to improve oversight of its anti-fraud and compliance programs and its incentive compensation and performance management policies for personnel who sell and underwrite home mortgage loans.
The amount of compensation that individual borrowers will receive depends on a number of factors, including differences between what they paid and what they should have paid in terms of origination points, interest payments, fees, and penalties, the Federal Reserve said in a statement.
According to the Federal Reserve, preliminary estimates indicate the amount that each eligible borrower will receive, on average, ranges between $1,000 and $20,000.
Wells Fargo did not admit to any wrongdoing in conjunction with the settlement, the Federal Reserve said in a statement.
“The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” company Chairman and CEO John Stumpf said in a statement. “Fair and responsible lending practices have been at the core of our culture, and they will continue to guide us as we work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce our internal controls so they further reflect Wells Fargo's commitment to helping customers succeed financially.”
According to the Star Tribune, many Minnesota residents were victims of the practices alleged by the Federal Reserve. Several lodged complaints against Wells Fargo with the Minnesota Department of Commerce as far back as 2003, and some local customers told the newspaper that they were overcharged or misled.
Wells Fargo has about 20,000 employees in Minnesota, making it one of the state's 10-largest employers.