Only July 20, the Federal Reserve Board issued a press release about its action against Wells Fargo & Company for lending and mortgage abuses. The action includes a "cease and desist" order, an $85 million civil penalty, and an order for Wells Fargo to compensate affected borrowers:
"... issued a consent cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. The order addresses allegations that Wells Fargo Financial employees steered potential prime borrowers into more costly subprime loans and separately falsified income information in mortgage applications. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers."
The lending and mortgage abuses:
"Wells Fargo Financial--a once-active, non-bank subsidiary of Wells Fargo--made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans. The order addresses allegations that Wells Fargo Financial sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes."
The amount of compensation to be paid to affected borrowers has not been set. The number of affected borrowers is estimated betweet 3,700 and 10,000. The amount of compensation will be dependent upon several factors:
"... including differences between what borrowers paid and what they should have paid in terms of origination points, interest payments, fees, and penalties."
On the same day, Wells Fargo issued a statement which read in part:
"The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” said Chairman and CEO John Stumpf. “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... The Company’s agreement with the Federal Reserve does not include an admission of the allegations cited, which cover lending practices at Wells Fargo Financial between January 2004 and September 2008... Within 90 days, Wells Fargo will submit plans to the Federal Reserve that will outline its oversight of its mortgage lending practices regarding certain compliance and incentive compensation programs. In addition, Wells Fargo will develop a plan for continuing to identify and provide compensation to Wells Fargo Financial customers who may have been harmed by the practices alleged in the agreement..."