Wells Fargo has agreed to pay $4 million to settle charges that it made secured credit card loans in violation of New York law.

The company will pay a $2 million penalty and an additional $2 million in restitution to more than 1,300 New York residents, according to a news release from the state's Department of Financial Services.

The case involved loans that a former Wells Fargo affiliate made before 2006 through the Nowline Visa Platinum credit card account. Loans were secured with an interest in the borrowers' homes, which state officials said is illegal in New York.

"Our investigation uncovered that this Wells Fargo affiliate put borrowers' home on the line for routine credit card purchases — creating substantial and undue risks for consumers," Financial Services Superintendent Benjamin Lawsky said in the news release.

The consent order also states that a 2008 examination of the Wells Fargo affiliate found evidence that certain mortgage files contained falsified documents, with borrowers' income having been inflated so that they could qualify for the loans.

New York officials estimated that those expected to receive restitution will get approximately $1,600 each. They also said that borrowers will receive a 2% reduction in the interest rate on their loan balances, which is expected to provide an additional $300,000 in consumer savings.

In addition, Wells Fargo agreed to release any security interest or liens it held in New York homes in connection with the Nowline product.

Tom Goyda, a Wells Fargo spokesman, said in an email that the bank's affiliate stopped offering the product to New York customers in 2005. That's the same year that New York officials conducted an examination of the affiliate.

"We are pleased to have resolved the New York Department of Financial Services' concerns," Goyda said.

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