Fed Fines Wells Fargo Record $85 Million for Poor Lender Conduct

The Federal Reserve announced on Monday that it would be hitting Wells Fargo with an $85 million fine for allegedly pushing borrowers with good credit into expensive mortgage loans. The bank also received the record fine from the Fed for allegedly falsifying its borrowers’ loan applications.

Borrowers with Good Credit Pushed Into Subprime Mortgages

According to the Federal Reserve, Wells Fargo, the nation’s fourth largest bank by assets, steered potential borrowers with credit scores that could have qualified them for prime rates into more expensive subprime loans.

The Fed also claimed employees of Wells Fargo Financial–a non-bank subsidiary that closed last year–doctored income information on mortgage applications. This allowed the lender to push borrowers through that would not have otherwise qualified for a loan based on their income.

The fine is said to be the largest ever issued by the Federal Reserve under its consumer-protection authority. It is also the first action taken against a bank for predatory lending practices that relate to the housing mortgage crisis.

The loans were made between 2004 and 2008. They are estimated to involve up to 10,000 borrowers.

Wells Fargo to Repay Borrowers

In addition to paying the fine to the Federal Reserve, Wells Fargo has been ordered to compensate borrowers who were affected by the alleged activities. The bank agreed to pay the fine, but won’t admit to any wrongdoing.

Wells Fargo released a statement saying the allegations stem from a few former employees. It pledged to increase its oversight of lending practices.

The bank has also been ordered to review subprime loans made between Jan. 2006 and June 2008. If it is decided that borrowers within that period were pushed into loans or had their income altered, the bank will be required to make restitution in those instances as well.

The Fed estimates that the 10,000 or so borrowers could be eligible for compensated that ranges from $1,000 to $20,000. An estimated 600 customers have already been compensated, but more should look to hear from the bank in the near future.