Department of Corporations Puts Wells Fargo on Notice;
Mortgage Lending License to Be Revoked Because of Refusal to Refund Consumers
Business Wire - February 05, 2003 14:52
SACRAMENTO, Calif.--(BUSINESS WIRE)--Feb. 5, 2003--The Davis Administration today announced that the Department of Corporations has issued notice of intent to revoke the residential mortgage lending license of Wells Fargo Home Mortgage, Inc., because of Wells Fargo's refusal to make refunds after the Department's routine examination revealed improper charges and inadequate disclosure to California consumers.
"When Department of Corporations examiners discovered that Wells Fargo Home Mortgage was making charges not allowed in California, the bank chose not to make the requested refunds to its mortgage customers," said Commissioner Demetrios A. Boutris. "Instead, Wells Fargo challenged California's authority in federal court. On behalf of the consumers of this state who are tired of being charged hundreds more than they owe by multibillion dollar financial institutions, we intend to revoke Wells Fargo's license to offer home mortgages in California."
The Department found two types of violations in its examination of Wells Fargo Home Mortgage: per diem interest overcharges (a state violation) and a failure to fully disclose finance charges (a federal Truth in Lending Act violation). The per diem violation arises when a lender charges more than one day's interest prior to the recording of the mortgage or deed of trust. In the loans examined, this resulted in approximately $150 of charges to the borrower per violation. The second type of violation, a failure to disclose all appropriate charges in the finance charge calculation, resulted in finance charges being understated by an average of $613 in the loans where the violation occurred. Since the Department was only able to examine a fraction of the loans made by Wells Fargo in 2000 and 2001, Wells Fargo was instructed to take the appropriate steps -- including, presumably, a self-audit -- to make refunds to customers.
Despite having featured their Department of Corporations license for marketing purposes on printed materials and on their website, Wells Fargo refused to make refunds and instead claimed that California's authority was preempted by federal law. Furthermore, Wells Fargo chose not to follow the advisory letter issued by the regulator of national banks, the Office of the Comptroller of the Currency, in questions concerning the enforcement of state law. While the letter counsels national banks to consult with the OCC upon being contacted by a state regulator looking to enforce state laws, Wells Fargo did not take action until it was requested to make refunds. The action taken was filing suit in the United States District Court for the Eastern District of California on January 28, 2003, where Wells Fargo complained that an audit would cost "several million dollars."
Wells Fargo's (NYSE:WFC) lawsuit seeks exemption for the lender from the California Residential Mortgage Lending Act. Compared to federal law, this state law provides several significant protections which are designed to protect California borrowers from unlawful, deceptive, and fraudulent lending and servicing activities. Wells Fargo's lawsuit is unrelated to the $38 million lawsuit filed last month by the Department regarding 15,000 admitted overcharges by Wells Fargo Financial.
The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov or call 1-866-ASK-CORP (1-866-275-2677).
CONTACT: Department of Corporations
Andre Pineda, 916/322-6941
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