Fed Assesses $85M Penalty Against Wells Fargo

""Wells Fargo & Company"":http://www.wellsfargo.com has reached an agreement with the ""Federal Reserve"":http://www.federalreserve.gov that resolves allegations arising from an investigation into internal controls at its former Wells Fargo Financial unit, which was closed in July 2010.

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The Federal Reserve alleged that Wells Fargo Financial did not adequately detect and prevent instances of fraudulent loan applications and that the unit's employees steered prime borrowers into more costly subprime loans.

The Fed on Wednesday issued a consent cease and desist order and assessed an $85 million civil money penalty against the San Francisco-based lender. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers.

As part of the agreement, Wells Fargo says it is reinforcing oversight of mortgage lending practices and implementing

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processes that will identify and provide compensation to customers harmed by the alleged practices.

“The alleged actions committed by a relatively small group of team members are not what we stand for at Wells Fargo,” said John Stumpf, the company’s chairman and CEO.

“Fair and responsible lending practices have been at the core of our culture, and they will continue to guide us as we work closely with the Federal Reserve to provide restitution to customers who may have been harmed, and to reinforce our internal controls so they further reflect Wells Fargo’s commitment to helping customers succeed financially,” Stumpf added.

The company’s agreement with the Federal Reserve does not include an admission of the allegations cited, which cover lending practices at Wells Fargo Financial between January 2004 and September 2008.

The agreement notes Wells Fargo Financial identified instances in which sales personnel altered income documents to inflate prospective borrowers’ incomes, so the customers could qualify for loans they may not have otherwise been eligible to receive. The company terminated the individuals involved.

Before and during the Federal Reserve’s investigation, Wells Fargo says it voluntarily provided restitution, such as reduced interest rates and cash refunds, to approximately 600 Wells Fargo Financial customers pursuant to its own internal investigation.