Wells Fargo News

Everyone denies having quotas. The police insist they don't but ask yourself how often you've gotten tickets late in the month. Telephone solicitors say they don't have quotas but how often have you been signed up for something you never heard of?

David E. Douglas says Wells Fargo Bank is up to the same shenanigans. In a lawsuit in Los Angeles County Superior Court, Douglas charges that employees of three different Wells Fargo branches opened new accounts in his name and his business' name without his knowledge.

Douglas says branch employees are under so much pressure to sign up new customers that they use the information they already have on existing customers to open phony new accounts. Douglas claims the individual defendants opened at least eight accounts in his name and forged his signature on the applications without his knowledge, Courthouse News Service reported.

Given the demands Wells Fargo makes on its employees, it "should have known that its employees and bank managers routinely use the account information, date of birth, and Social Security and taxpayer identification numbers of defendant Wells Fargo's existing bank customers to use the existing bank customers' money to open additional accounts in the existing customers' names without their knowledge or consent and by forging the signature of their existing customers without their knowledge or consent to open said additional accounts, including purported business accounts for businesses that do not exist," Douglas' suit charges.

Even after being alerted to the issue, Wells Fargo did nothing, Douglas alleges. He says in the suit that when he found out about the unauthorized accounts, he contacted a fraud investigator at the bank's Beverly Hills branch. She assured him that Wells Fargo would "conduct a thorough investigation and make him whole," but he never heard back from her or anyone else at the bank, so he was forced to sue, Douglas says in the complaint.

The Justice Department has sued Wells Fargo, the nation's largest mortgage lender, accusing it of "reckless" lending and sticking the Federal Housing Administration (FHA) with the tab for loans that went bad.

Prosecutors say they are seeking "hundreds of millions of dollars" in damages on behalf of the FHA.  The complaint, filed in New York City, alleges that for more than a decade, Wells Fargo engaged in "reckless" underwriting of government-backed loans.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," Manhattan U.S. Attorney Preet Bharara said. "As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.

"What’s more, even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year. Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay,” Bharara said. 

At issue are more than 100,000 FHA-backed loans. Wells Fargo said the loans met federal lending guidelines when half of them didn't, the government alleges.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” U.S. Attorney Preet Bharara said in a prepared statement.

The Justice Department's case is similar to those filed earlier against Citigroup, Deutsche Bank and other lenders. Deutsche Bank has agreed to pay $202 million and Citigroup is paying $290 million. A suit against Allied Home Mortgage is still pending. Bank of America has said it reached an agreement to resolve claims for FHA-insured loans made by Countrywide Mortgage.

In July, Wells Fargo paid $125 million and set up a $50 million assistance fund to settle federal allegations that it discriminated against minority borrowers.

A class action lawsuit alleges that lending giant Wells Fargo profited off an unholy scheme with an appraiser owned by Wells Fargos parent company.

According to the suit, Wells Fargo requires borrowers to use Rels Valuation, an appraisal service owned by the same company that controls Wells Fargo. In turn, Rels, which uses third-party appraisers to perform the work, forces these vendors to come back with an appraisal that meets Wells Fargos expectations, and pays the appraisers well below market value for their services.

Despite the bargain that Wells Fargo receives on the appraisals, it continues to charge consumers the full amount for the service, and pockets the difference.

As described in the suit, Wells Fargos alleged scheme is exceedingly clever and complex. According to the suit, filed in the United States District Court for the District of Arizona, Wells Fargo pressures subcontracting appraisers to report back with a price that will allow Wells Fargo to underwrite the loan without significant obstacles, regardless of whether the figure is accurate.

Additionally, Wells Fargo allegedly informs the appraiser that they will pay them drastically less than the going market rate for their services. If the appraiser refuses to comply with either of these conditions, they are placed on Wells Fargos exclusion list, and are not considered for future appraisals.

Because of Wells Fargos giant stature — it is the number one mortgage lender in the nation — refusal to acquiesce in these demands could mean a drastic drop in appraisers business and significant damage to their reputation.

Under the rules laid out in the Real Estate Settlement Procedures Act (RESPA), no company is allowed to require consumers to use another company, as such arrangements practically invite the kind of price gauging alleged here. However, the Act makes an exception for lenders, since appraisals are ostensibly done to protect their interests, and allowing them to choose a trusted appraiser helps further this purpose.

Under RESPA, however, when a lender requires the use of a certain appraiser, they must inform the consumer both of the relationship and of the amount they were charged by the appraiser. According to the suit, Wells Fargo sometimes disclosed the relationship between themselves and Rels, but never disclosed the price they paid for the appraisals, giving consumers no indication that they were paying as much as twice what Wells Fargo had for the service.

The suit estimates that, given Wells Fargos size and influence, tens or even hundreds of thousands of homeowners have been victimized by the scheme.

It brings claims under both RESPA and the Racketeer Influenced and Corrupt Organizations Act (RICO), since the scheme was allegedly carried out across state lines via U.S. mail and interstate wire facilities. The suit also alleges unjust enrichment against Rels and breach of fiduciary duty and unfair competition against Wells Fargo.

Reader response

I would like to applaud Jon Hood for his bravery in telling the truth. I would also like to thank whatever Attorney(s) are involved and to lend support for their cause. Our business as honest, ethical appraisers has been derailed by these greedy companies. Did you know the CEO for Wells sat on the recent HVCC comittee to determine policy?

RC, Colorado Springs, CO

The city of Los Angeles has filed suit against Wells Fargo Bank, alleging that the bank's policies and high-pressure sales quotas encouraged employees to engage in “unfair, unlawful and fraudulent conduct” against customers.

L.A. Prosecutor Mike Feuer filed the suit in state court on Monday, alleging that, among other things, employees would misuse customers' confidential information, open accounts in customers' names without authorization, often failed to close those accounts when the customers demanded it, and sometimes even took money out of authorized client accounts to pay for those unauthorized fees.

“The result is that Wells Fargo has generated a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profit,” the lawsuit says.

Furthermore, “On the rare occasions when Wells Fargo did take action against its employees for unethical sales conduct, Wells Fargo further victimized its customers by failing to inform them of the breaches, refund fees they were owed, or otherwise remedy the injuries that Wells Fargo and its bankers have caused.”

Gaming

The lawsuit also claims that Wells Fargo bankers engaged in a practice known as “gaming” -- opening unauthorized accounts in customers' names, making unauthorized withdrawals from customers' authorized accounts to pay the fees on the unauthorized ones, and reporting customers to collections and/or posting “derogatory information” in the customers' credit reports.

Wells Fargo responded with a statement saying it would fight those allegations in court, and that “Wells Fargo's culture is focused on the best interests of its customers and creating a supportive, caring and ethical environment for our team members. This includes training, audits and processes that work together to support our Vision & Values and our commitment to customers receiving only the products and services they need and will benefit from.”

Yet many consumers — from all over the country, not just California — have written reviews that sound remarkably similar to some of the allegations mentioned in Feuer's lawsuit. Consider this sampling of complaints we got about Wells Fargo, just during the month of April 2015. Dan from Bozeman, Montana wrote us on April 1 to say:

Over the past several years, I have become more and more frustrated with Wells Fargo as a whole. I have kept my personal and business bank accounts with Wells Fargo and just about every month they find a way to charge some kind of fee for some random reason. Their accounts are set up with such complex sets of terms and conditions that you cannot possibly keep track of all of them. If you don't watch your accounts daily - you can be assured they will be siphoning money. The bankers will always assure you that your accounts are free.. just know that they are not.

"Misled in the beginning"

Tawnya from Alexandria, Alabama went into more detail about those fees. She visited her local Wells Fargo branch seeking “ANOTHER temporary check card since the company failed to send me the new card, although I did receive an email [assuring me] it was sent out.” While she spoke to one employee about her check-card problems, another one overheard her mention that she had an at-home business, and encouraged her to open a business savings account.

He quickly went over the benefits and had me transfer $150 from my checking on that day, explaining to me $150 must be deposited into the business savings monthly. He did not specify it had to be an automatic transfer set up for a specific date.... [the following month] I made a deposit of $150 in the Lenlock, AL branch and no worries, until I see they took out a $14 service charge from my business checking and $6 from my business savings. As I looked further, there was another $6 charge to my business savings in Feb. … Not only was I charged a $5 service fee for years to have a checking account after the Wachovia/Wells Fargo takeover, but now I am getting service fees for trying to build a business when I was mislead in the beginning by the representative ….

John from Chicago said that “Wells Fargo small business account reps gave me a personal credit card I did not ask for and charged me fees for that.”

But Octavia from New Jersey offered a view from the employees' side of the table:

.... [O]ur finances hit the toilet when my husband switched jobs and began working for Wells. The amount of stress and pressure that he had to endure to sell and open accounts was too much for him. ... My husband has since left but reiterates that it is the worst to its customers and employees alike!

The online video that insults the prophet Muhammad has sparked a crisis in the Middle East and isn't doing much to make life easier for banking customers in the U.S. either.

Cyber attacks blocked Wells Fargo's site in much of the country today and U.S. Bancorp and PNC are said to be next on the list.  Bank of America, Citigroup and JPMorgan Chase were all hit earlier. 

The disruptions were caused by what are known as denial of service attacks, in which massive numbers of computers hit sites simultaneously, flooding them with requests that cause the sites to either go down or operate at a crawl.

A group calling itself the Izz al-Din al-Qassam Cyber Fighters has claimed responsibility for the attacks and says they will continue until that controversial video is taken down.

The Wells Fargo site was completely unreachable for much of today, creating cries of anguish and outrage from many of its 21 million online customers.

Many customers have blamed the banks for the attacks, although experts say there is little that anyone can do to defend against massive distributed denial of service (DDOS) attacks, so called because they use thousands of computers all around the world to mount simultaneous attacks that overwhelm not just the targeted sites but, in many cases, other sites hosted within the same data centers.

Wells Fargo issued a statement apologizing for the outage. 

"We are working to quickly resolve this issue. Customers can still access their accounts through our ATMs, stores and by phone," the bank said in a statement.

A federal class action claims Wells Fargo Bank forces borrowers to take out too much flood insurance on their homes, then takes kickbacks and commissions on the insurance it takes out on their behalf. 

The suit was filed in U.S. District Court in Pittsburgh on behalf of Desiree Morris, of Washington, Pa., who said Wells Fargo acquired a $115,000 mortgage on her home in 2009. She currently owes about $113,000.

Upon taking out the loan, Morris said she bought flood insurance in the amount of $118,000. In November 2010, the policy was renewed and the coverage was increased to $129,800, a 10% increase from her previous level.

Morris argues that the higher amount exceeds federal requirements by more than $14,000.

She notes that federal law requires that homes which, like Morris', are in a flood plain must have insurance “in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage ...whichever is less.”

But that was only the beginning.

The month after her insurance was increased to $129,800, Morris received a letter from Wells Fargo which claimed that her flood insurance coverage was "less than the coverage required" and claimed that she was required to have insurance that would provide the full replacement cost for her home, up to $250,000.

Wells Fargo said in the letter that if Morris did not take out more insurance, the bank would do so for her, taking out a "lender-placed policy" and charging her for it. The letter said Wells Fargo had purchased $94,000 worth of additional flood insurance on a 90-day binder and said it would bill her escrow account for the $893 cost.

The demands in the letter were "fraudulent, deceptive and misleading," Morris' suit claims and it charges that Wells Fargo was "unfairly, unjustly and unlawfully enriched by the kickbacks, commissions or other compensation."

The suit seeks class action status on behalf of anyone who had a loan or line of credit with Wells Fargo who was required to purchase flood insurance.

It charges Wells Fargo with violating the Truth in Lending Act, breaching its agreement, violating the Real Estate Settlement Procedures Act and misappropriating funds held in trust, among other allegations.

Nearly a year after purchasing Wachovia, Wells Fargo may be prepared to consolidate the operations of the two banks.

The Los Angeles Times reports Wells Fargo will close 122 branches in California, as part of that consolidation. The paper quotes a bank official as saying that it will mostly be current Wachovia branches -- smaller and located near larger Wells Fargo branches -- that will be closed.

Even with the downsizing, Wells Fargo will remain one of the larger banks in California, with more than 1,000 branches in the state.

Wells Fargo brokered a deal to purchase Wachovia in the wake of last year's banking sector meltdown, when it suddenly became evident that a number of institutions were insolvent, because of their investment in mortgage backed securities.

In October 2008, The Charlotte Observer reported Wachovia experienced a "silent run" as large customers closed out their accounts, fearful of a collapse. As a result, there were real concerns the bank wouldn't be able to remain open.

The situation became urgent after Wachovia executives noticed an unusual number of withdrawals the day after the Washington Mutual failure. Many of the withdrawals were made by large corporate depositors, who had more than $100,000 in the bank. As a result, the bank's operating capital fell to dangerously low levels.

Illinois Attorney General Lisa Madigan has filed suit against Wells Fargo and Company, charging the bank discriminated against African American and Latino homeowners by selling them high-cost subprime mortgage loans while white borrowers with similar incomes received lower cost loans.

As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities predominantly African-American and Latino neighborhoods into ground zero for subprime lending, said Madigan. The dreams of many hardworking families have ended in foreclosure due to Wells Fargos illegal and unfair conduct.

Madigans lawsuit, which is the result of an investigation into possible violations of fair lending and consumer fraud laws, cites marked disparities in Wells Fargos lending data. In 2005, according to an analysis of Chicago-area data, approximately 45 percent of Wells Fargos African-American borrowers and 23 percent of the lenders Latino borrowers received a high-cost mortgage. That same year, only about 11 percent of the lenders white borrowers received high-cost mortgages.

The trend continued in 2006, with approximately 58.5 percent of Wells Fargos African-American borrowers and 35 percent of its Latino borrowers in the Chicago area receiving high-cost mortgages, compared with only 16 percent of white borrowers. In 2007, approximately 49 percent of Wells Fargos African-American borrowers and 25 percent of Latino borrowers were sold a high-cost loan in the Chicago area, compared with only 15 percent of white borrowers.

The lawsuit also follows a recent Chicago Reporter analysis of mortgage data submitted by Wells Fargo to the federal government. That study found that, in 2007, Wells Fargo sold high-cost, subprime loans more often to its highest-earning African-American borrowers in Chicago than to its lowest-earning white borrowers. According to the study, in 2007, about 34 percent of African Americans earning $120,000 or more received high cost mortgages from Wells Fargo in the Chicago metro area, while less than 22 percent of white borrowers earning less than $40,000 received high-cost mortgages from the lender.

These disparities indicate that something is very wrong with Wells Fargos mortgage lending, said Madigan. They strongly suggest that the predictor of whether a borrower would receive a high-cost home loan from Wells Fargo was race, not income.

Madigans complaint alleges that Wells Fargo established highly discretionary lending policies and procedures with weak oversight that permitted Wells Fargos employees to steer African-Americans and Latinos into subprime loans. As cited in the complaint, Wells Fargos discretionary policies and procedures included a compensation structure that rewarded employees for placing borrowers into high-cost mortgages.

The complaint also alleges that Wells Fargo targeted African-American borrowers for the sale of high-cost loans by hosting a series of wealth building seminars in cities throughout the country, including Chicago.

Madigan noted that high-cost, subprime loans of the kind sold by Wells Fargo are defaulting and going into foreclosure in record numbers, and are largely responsible for triggering the worst economic recession in recent memory. The Attorney Generals complaint comes as the home foreclosure crisis continues to affect hundreds of thousands of homeowners in Illinois and across the nation. Illinois saw almost 69,000 foreclosure filings in the first half of 2009, up nearly 30 percent from the first half of 2008. In Cook County alone, it is anticipated that mortgage foreclosure filings will top 52,000 by the years end, compared with 43,876 in 2008.

By targeting African-Americans for the sale of its highest-cost and riskiest loans, Wells Fargo drained wealth from families and neighborhoods and added to the stockpile of boarded-up homes that are an open invitation to criminals, Madigan said.

Additionally, the lawsuit alleges that Wells Fargo Financial Illinois, a subsidiary of Wells Fargo and Company that primarily originated subprime loans, engaged in unfair and deceptive business practices by misleading Illinois borrowers about their mortgage terms, misrepresenting the benefits of refinancing, and repeatedly refinancing loans, also known as loan flipping, without any real benefit to consumers.

Also, the complaint maintains that Wells Fargo Financial used deceptive mailings and marketing tools to confuse borrowers as to which division of Wells Fargo and Company they were doing business with prime or subprime. As a result, borrowers believed they were doing business with Wells Fargo Home Mortgage, which offered mainly prime loans, when in fact they were dealing with Wells Fargo Financial, a predominantly subprime lender.

By Mark Huffman
ConsumerAffairs.com

July 9, 2010
Wells Fargo is getting out of the subprime mortgage business, announcing plants to consolidate its Consumer Finance division.

The company said it expects 638 independent consumer finance offices will be closed as a result. In closing the offices, Wells Fargo said it is "exiting the origination of non-prime portfolio mortgage loans."

Subprime loans, often offered with low "teaser" rates, were the first to go bad, triggering a wave of foreclosures and precipitating the credit crises in late 2008.

The remaining consumer and commercial loan products offered through Wells Fargo Financial will be realigned with those offered by other Wells Fargo business units and will be available through Wells Fargo's expanded network of community banking and home mortgage stores, the company said.

The consolidation is also the result of Wells Fargo's 2008 merger with Wachovia. The bank says its customers now have access to its 6,600 Wells Fargo and Wachovia community bank stores and its 2,200 Wells Fargo Home Mortgage locations, eliminating the need for a separate network of Wells Fargo Financial local offices.

Fewer than two percent of all Wells Fargo's real estate loans were originated in Wells Fargo Financial stores in the first quarter of 2010, the company said.

"Our network of U.S.-based consumer finance stores, which have historically operated as an independent sales channel from our bank operations, have served customers well for more than 100 years," said David Kvamme, president of Wells Fargo Financial, "but the economics of a separate Wells Fargo Financial channel are no longer viable, especially now that our customers have access to the largest banking and mortgage store network in the United States."

The company said the restructuring of Wells Fargo Financial will not affect the number of community banking or home mortgage stores currently in operation. Customers with existing Wells Fargo Financial consumer loans and clients of Wells Fargo Financial's commercial businesses will continue to be served without disruption.

Consolidation

FHA home loans, auto loans and credit cards previously offered by Wells Fargo Financial will be consolidated with similar products across the company and will be offered through the company's network of community banking stores, mortgage stores, phone banks and wellsfargo.com. Wells Fargo Financial's commercial businesses will be realigned with business units within Wells Fargo over the next 12 months. However, Wells Fargo will no longer originate non-prime portfolio real estate loans.

Wells Fargo said it will also eliminate approximately 2,800 positions during the next 60 days, and 1,000 positions will likely be eliminated during the next 12 months.

The second largest fair lending settlement in Department of Justice history has been filed, resolving allegations that Wells Fargo Bank engaged in a pattern or practice of discrimination against qualified black and Hispanic borrowers in its mortgage lending from 2004 through 2009.  

The settlement provides $125 million in compensation for wholesale borrowers who were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin. 

Wells Fargo, the largest residential home mortgage originator in the United States, will also provide $50 million in direct down payment assistance to borrowers in communities around the country where the department identified large numbers of discrimination victims and which were hard hit by the housing crisis.  

Additionally, the bank has agreed to conduct an internal review of its retail mortgage lending and will compensate African-American and Hispanic retail borrowers who were placed into subprime loans when similarly qualified white retail borrowers received prime loans.   

Compensation paid to any retail borrowers identified in the review process will be in addition to the $125 million to compensate wholesale borrowers who were victims of discrimination. 

“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” said Deputy Attorney General James M. Cole. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for. 

“With today’s settlement,”, he continued, “the federal government will ensure that African-American and Hispanic borrowers who were discriminated against will be entitled to compensation and borrowers in communities hit hard by this housing crisis will have an opportunity to access homeownership.” 

The complaint 

The settlement, which is subject to court approval, was filed in the U.S. District Court for the District of Columbia in conjunction with the department’s complaint, which alleges that between 2004 and 2008, Wells Fargo discriminated by steering approximately 4,000 black and Hispanic wholesale borrowers, as well as additional retail borrowers, into subprime mortgages when non-Hispanic white borrowers with similar credit profiles received prime loans.   

All the borrowers who were allegedly discriminated against were qualified for Wells Fargo mortgage loans according to Well Fargo’s own underwriting criteria. 

The government also alleges that, between 2004 and 2009, Wells Fargo discriminated by charging approximately 30,000 black and Hispanic wholesale borrowers higher fees and rates than non-Hispanic white borrowers because of their race or national origin rather than the borrowers’ credit worthiness or other objective criteria related to borrower risk.  

“By reaching a settlement in this case, African-American and Hispanic wholesale borrowers who received subprime loans when they should have received prime loans or who paid more for their loans will get swift and meaningful relief,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division.   “As one of the largest mortgage lenders in the country, Wells Fargo’s commitment to conduct an internal review of its retail lending and compensate African American and Hispanic retail borrowers who may have been improperly placed in subprime loans is significant. We will continue to work aggressively to ensure that all qualified borrowers have access to credit on an equal basis.” 

Race a factor 

The United States’ complaint alleges that black and Hispanic wholesale borrowers paid more than non-Hispanic white wholesale borrowers, not based on borrower risk, but because of their race or national origin.   Wells Fargo’s business practice allowed its loan officers and mortgage brokers to vary a loan’s interest rate and other fees from the price it set based on the borrower’s objective credit-related factors.   

This subjective and unguided pricing discretion resulted in black and Hispanic borrowers paying more. The complaint also alleges that Wells Fargo was aware the fees and interest rates it was charging discriminated against black and Hispanic borrowers, but the actions it took were insufficient and ineffective in stopping it.  

In addition, the complaint contends that, as a result of Wells Fargo’s policies and practices, qualified black and Hispanic wholesale borrowers were placed in subprime loans rather than prime loans even when similarly-qualified non-Hispanic white borrowers were placed in prime loans.   

The discriminatory placement of wholesale borrowers in subprime loans, also known as “steering,” occurred because it was the bank’s business practice to allow mortgage brokers and employees to place a loan applicant in a subprime loan even when the applicant qualified for a prime loan .   

In addition, Wells Fargo gave mortgage brokers discretion to request exceptions to the underwriting guidelines, and Wells Fargo’s employees had discretion to grant these exceptions.         

The department began its investigation into Wells Fargo’s lending practices in 2009 and received a referral in 2010 from the Office of the Comptroller of the Currency (OCC) which conducted its own parallel investigation of Wells Fargo’s lending practices in the Baltimore and Washington, D.C. metropolitan areas.  

The OCC found that there was reason to believe that Wells Fargo engaged in a pattern or practice of discrimination in these metro areas on the basis of race or color, in violation of the FHA and ECOA.