Regulators in Maryland and Louisiana have asked Wells Fargo & Co.'s consumer finance unit for detailed information on its lending practices and, in some instances, on loans to specific borrowers, documents show.
Meanwhile, the nonprofit Association of Community Organizations for Reform Now - which led a previous campaign that culminated in a $484 million settlement between Household International Inc. and state attorneys general in 2002 - filed suit against the unit in an Illinois state court Thursday.
Acorn is seeking class-action status for the suit, which alleges Wells Fargo Financial Inc. of Des Moines violated an Illinois cap on loan fees.
Since the unit is a subsidiary of a holding company, not of a bank, it does not enjoy federal preemption from the jurisdiction of state agencies. A spokesman for the Office of the Comptroller of the Currency said it only preempts banks and their operating subsidiaries. He noted that the only operating subsidiary listed for Wells Fargo's bank on the OCC's Web site is its home mortgage unit.
In an e-mailed response to American Banker's questions, Judy Corcoran, a Wells Fargo spokeswoman, said that she had no information about the Louisiana action, but the unit is cooperating with the Maryland regulator.
Wells Fargo denied Acorn's allegations. In a written response Thursday to questions from American Banker, Lynn Greenwood, another Wells spokeswoman, said it is "confident we'll prevail" in the suit.
"We have fully disclosed our prices, which are competitive and adjusted for risk." The unit has "a long-standing policy and process for responding to customers who have complaints," Ms. Greenwood wrote. "We carefully research those complaints, and if we have erred, we do what is right for the customer."
On Monday, Louisiana Attorney General Charles C. Foti's office filed a civil investigative demand in state court asking the Wells unit to turn over documents relating to 19 borrowers or couples for whom the office has received complaints.
The demand is the equivalent of a subpoena, according to Assistant Attorney General Mike Guy.
The filing says it came "in the course of an official investigation to determine whether there has been any violation of" Louisiana's Unfair Trade Practices and Consumer Protection Law by Wells Fargo Financial or any of its affiliates.
"For some time now we have been receiving numerous complaints from consumers about certain practices of theirs," Mr. Guy said in an interview Wednesday. The practices in question include high rates, "some cases of stripping" of equity, and "high origination fees, or a large number of points charged at inception."
Other lenders are doing some of the same things in Louisiana, but the problem "seems to be more prevalent" at Wells Fargo Financial, he said.
The offenses were on loans originated in the "last couple" of years, Mr. Guy said.
Documents provided by Acorn to American Banker say that in one of the cases cited by the Louisiana Attorney General's Office, Wells Fargo charged Debra Branham of New Orleans a "prepaid finance charge" of $14,115, or about 10% of her $141,154 loan, which closed Dec. 31, 2001.
In her e-mail, Ms. Corcoran said that in late 2001, "our pricing was competitive," and "since then we have changed our pricing structure in response to changes in the competitive landscape and in our business model."
Maryland's Commission on Human Relations issued a subpoena to Wells Fargo Financial and its local affiliate April 22 requesting detailed information on many of its guidelines from Jan. 1, 2002, to the present.
The information the commission requested related to things like underwriting policy, direct mail advertisements, loan application forms, credit scoring, and the mandatory arbitration clauses Wells Fargo Financial has used on its loans.
Valerie Coffin, an Acorn organizer in Baltimore, said Wednesday that it had expressed concern to the commission that Wells was targeting minority neighborhoods for its subprime loans.
She said that the commission has the authority to sue Wells in state court on fair-housing claims, but no suit has been filed.
Acorn's suit, filed in the Cook County Circuit Court in Chicago, claims Wells violated an Illinois law barring lenders from charging fees exceeding 3% of the loan amount when the interest rate tops 8%.
Another Acorn organizer, Lisa Donner, said that in recent years Wells has charged up-front fees of up to 11% of the loan amount on high-interest loans.
The goal of the suit "is to enforce the Illinois law and return overcharges to borrowers," and Wells continues to break the law up to the present day, Ms. Donner said.
A few weeks ago the New Jersey Supreme Court turned down a class action on prepayment penalties. The court ruled that federal law preempted state limits on the penalties.
But Acorn has apparently chosen a more propitious forum. On March 31 an Illinois appellate court upheld the state's interest rate law in the case of U.S. Bank N.A. v. Clark.
