California-based Wells Fargo & Co. continues its fight to reclaim legitimacy in the wake of another new federal investigation. In announcing earlier this week that federal prosecutors had brought new claims, a spokesperson emphasized that Wells Fargo would “continue seeking to demonstrate to the Department of Justice our compliance with fair-lending laws.”
Less than one year ago, the company agreed to pay an $85 million fine to settle claims brought by the Federal Reserve. The charges centered over the company’s subprime loan business, including allegations that Wells Fargo employees may have influenced customers eligible for prime interest rates involving a real estate transaction into subprime loans intended for riskier borrowers.
In the wake of that scandal — the largest assessed by the Federal Reserve in a consumer-protection enforcement case at the time — it may be easy to forget that subprime loans actually play a legitimate role in the mortgage lending market.
For families whose credit histories prevent them from qualifying for prime, conventional loans, subprime loans empower them with the means of fulfilling their dreams of homeownership. Because subprime loans constitute a greater risk for the lender, they tend to cost more and may have less favorable terms — including higher interest rates — than conventional loans.
Given the size of Wells Fargo’s fine, it may be easy to assume the company was at fault. However, a settlement, by definition, usually does not involve an admission of liability. That was the case with Wells Fargo’s settlement.
If the government fails to regulate one business practice as closely as another, the fault should hardly lie on the shoulders of the California company. If you find your business in a position such as this, an experienced business law attorney.
If the government failed to regulate subprime loans as closely as conventional lending transactions, that fault hardly lies with California’s lending companies.
Source: Bloomberg, “Wells Fargo Says DOJ May Seek Penalties Over Fair Lending,” Bradley Keoun and Dakin Campbell, May 8, 2012