Wells Fargo (WFC) will pay a $4 million penalty after an investigation by the New York Department of Financial Services found that a former affiliate of the bank falsified mortgage loan origination files, made loans to customers that were secured by an interest in the borrower’s home, and committed other infractions in violation of New York State law.
According to the NYDFS, beginning in 2006, Wells Fargo Financial Credit Services of New York issued a series of home equity lines of credit to New York borrowers under the product name “Nowline Visa Platinum Credit Card Accounts.” The cards allowed borrowers to make retail credit card purchases that were secured by an interest in the borrower’s home, which is against the law in New York.
“Our investigation uncovered that this Wells Fargo affiliate put borrowers’ homes on the line for routine credit card purchases – creating substantial and undue risks for consumers,” NYDFS Superintendent Benjamin Lawsky said. “This agreement will provide direct relief to New York consumers.”
Under the terms of the settlement agreement between Wells Fargo and the NYDFS, Wells Fargo will pay a $2 million penalty to the state of New York and will provide approximately $2 million in direct consumer restitution payments.
In addition to the HELOC violations, the NYDFS investigation also determined that Wells Fargo “altered and falsified” mortgage loan origination files by inflating borrowers’ income levels in order to facilitate qualifications that the borrowers would not have been qualified to receive otherwise.
As part of the agreement with the NYDFS, Wells Fargo must consider loan modifications for any borrower in default, foreclosure or facing “imminent default” whose loan documents were altered or falsified by Wells Fargo in order to secure a Nowline card.
Under the terms of the agreement, Wells Fargo must relinquish any security interest that it or any of its affiliates holds on the property of any Nowline Visa Platinum Credit Card customers in New York.
Wells Fargo must also reduce the annual percentage rate for all current Nowline cardholders by 2% and apply that rate cut for the remaining term of the card.
According to the NYDFS, this interest reduction will result in approximately $2,177,728 paid to borrowers for the years 2006 through Dec. 31, 2014, plus an approximate future remedial relief of $311,619 in reduced interest to the New York cardholders over the next five years.
Wells Fargo must also release its secured creditor status for any bankruptcy proceeding involving a Nowline cardholder. Additionally, Wells Fargo must repay the Chapter 13 bankruptcy trustee for all New York holders of Nowline cards secured by residential property located in New York all monies it collected as a secured creditor, which Wells Fargo Bank expects to equal approximately $58,399.
Wells Fargo is also required to notify the affected borrowers of the release of the interest in their homes, and notify any borrowers with open accounts that they have the ability to apply for a new home equity line of credit or a new account secured by real estate as a refinance of their NowLine account in “compliance with applicable law.”
In total, there were 2,155 Nowline Visa Platinum Credit Card Accounts opened for New York residents since Jan. 1, 2006. The NYDFS expects approximately 1,300 New Yorker to receive restitution payments from Wells Fargo for the violations. The NYDFS expects the restitution payments to average $1,600 per borrower.
Wells Fargo is also required to provide the NYDFS with quarterly progress and compliance reports on the restitution payments and the terms of the agreement.
“New Yorkers deserve to trust who they do business with – and because of this aggressive investigation, individuals and families across the state will be justly compensated,” New York Governor Andrew Cuomo said. “My administration is committed to ensuring that banks and credit card institutions are treating consumers honestly and fairly, and we will continue to do just that.”