Wells Fargo has agreed to pay more than $4 million in penalties in redress over allegations of misconduct related to loan qualifications and an illegal home equity product offered by a former affiliate to borrowers in New York.
In a statement released Thursday, the New York Department of Financial Services (NYDFS) said that Wells Fargo Financial Credit Services of New York offered loans to customers that allowed them to make credit card purchases secured by in interest in their own homes. Such loans are barred under state law.
"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," said department Superintendent Benjamin Lawsky.
Wells Fargo took ownership of the loan accounts in 2008 after the affiliate surrendered its license.
The department's consent order adds that a separate investigation in 2008 turned up evidence that certain mortgage loan documents contained altered information about borrowers' incomes in order to qualify them for loans they would have otherwise not received.
The order also says loan officers for the bank steered certain borrowers into loans with higher-cost subprime rates when the borrowers were potentially eligible for prime interest rate mortgages.
As a result of the investigation, Wells Fargo has agreed to pay a penalty to the department of $2 million. The bank will also retroactively reduce interest rates for approximately 1,300 affected borrowers, resulting in an additional $2.2 million. Going forward, the rate reduction is also expected to provide additional relief of about $311,619.
"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," said New York Governor Andrew Cuomo.
In an email, Wells Fargo spokesperson Tom Goyda said the bank is "pleased to have resolved the New York Department of Financial Services' concerns," adding that the affiliate stopped offering the product to New York customers in 2005.