Wells Fargo mortgage case being watched by Nevada regulators

Grace Leong

Monday, Feb. 10, 2003 | 10:59 a.m.

The Nevada Financial Institutions Division said it's closely watching for the outcome of California regulators' efforts to revoke a California mortgage license of Wells Fargo & Co., after Wells' home-loan unit refused to refund interest fees that allegedly broke state laws in California.

Unless Wells agrees to customer refunds and conducts an internal audit of its mortgage portfolio, the California Department of Corporations could pull the bank's California mortgage license by the end of the month, state regulators in California said.

California's Department of Corporations took the action Wednesday after San Francisco-based Wells, the nation's largest mortgage lender, sued the state agency last week in federal court in California, disputing the state's authority to regulate Wells, a nationally chartered banking company.

Wells and its subsidiary Wells Fargo Home Mortgage contend mortgages are primarily governed by federal laws that empower the bank to begin collecting interest earlier than California's regulations allow.

Federal law allows lenders to impose finance charges when customers receive the mortgage. California's rules, however, forbid interest charges until the day before the loan is officially recorded. This time difference is costing Wells Fargo customers a significant sum, California regulators alleged.

Based on a review of Wells mortgages made during 2000 and 2001, the Department of Corporations estimates that the bank is overcharging customers by an average of about $150 on loans that violate the state regulations.

Regulators also say Wells has made a habit of understating how much it will cost to close a loan.

But Scott Walshaw, commissioner for Nevada's Financial Institutions Division, said Wells Fargo's customers in Nevada aren't likely to be affected because "the time difference doesn't exist, since Nevada doesn't have the same laws as that of California's."

Julia Tunis, Wells Fargo's spokeswoman, agreed. "California is the only state that has this kind of law that differs from federal law. That's why this is just a California situation."

"Charging interest beginning when a loan is made makes common sense. It's fair and it's the law in every state except California. But most importantly, it's the law of the land," she said.

Nonetheless, Walshaw said his division is concerned about whether regulatory sanctions will be imposed against Wells Fargo in California.

"We can't apply California law to Nevada transactions," he said. "But we want to know what the results are and on what basis the sanctions are made. Whether that would have an impact on their ability to hold similar licenses in Nevada remains to be seen."

"If there's a settlement, then it's a non-event. But if California is successful in revoking Wells' license, then that may have impact on its ability to hold similar consumer finance licenses in states like Nevada. That revocation could be used as grounds to not renew or to revoke their license in other states like Nevada," Walshaw said.

In Nevada, Wells Fargo has 104 branches, 1,700 employees and $9.3 billion in assets -- making it the state's largest bank. Wells Fargo services more than 300,000 Nevada households.

This battle is the latest in a series of disputes between Wells and Department of Corporations' Commissioner Demetrios Boutris over efforts by state and local regulators in California to rein in banking companies.

Last month, the state agency filed a lawsuit against another division, Wells Fargo Financial, a consumer lending unit, alleging it overcharged 15,000 customers for personal loans. Wells Fargo attributed that problem to processing errors and has fully reimbursed all affected customers, Tunis said.