Banking giant Wells Fargo was recently fined $1 billion by the Consumer Financial Protection Bureau (CFPB).
The fine is due to Wells Fargo’s inappropriate charges on:
- auto loan borrowers who took out force-placed insurance; and
- homebuyers and other prospective mortgage borrowers who were charged a fee for extending an interest rate lock when they should not have been charged.
Interest rate locks are used for homebuyers to secure their interest rate from when they receive mortgage preapproval through closing. The rate lock is usually good for 30 days, but sometimes closing cannot happen within those 30 days, for reasons including:
- delayed submission of documents;
- property defects;
- appraisal issues; and
- Wells Fargo processing delays which are neither the buyer’s nor seller’s fault.
Homebuyers impacted by the rate lock fees applied for or closed a mortgage with Wells Fargo between September 2013 and February 2017.
During this time, the lender’s written policy was not to charge a fee when extending an interest rate lock when it was primarily the lender’s fault that closing was delayed. But in some cases, the lender charged a fee to the homebuyer, even though it was the lender’s fault that closing was delayed, which was against their written policy.
Further, Wells Fargo realized they were inconsistently applying their policy shortly after rolling it out, often charging a fee for a rate lock extension unnecessarily. But no concrete actions were taken to fix the issue until March 1, 2017, three-and-a-half years after the rate lock policy began.
What’s really noteworthy about this penalty is that it was levied by the CFPB shortly after the new director, Mick Mulvaney, an anti-regulatory Trump appointee, took over.
The new CFPB director’s mandate is “to fulfill the Bureau’s statutory responsibilities, but go no further.” Therefore, any bank to be fined under Mulvaney’s leadership must have harmed consumers considerably.
Watch for hidden charges
The homebuying process is overwhelming for even the most financially-savvy homebuyers, and by the end, the long list of charges and fees can blur together.
Still, Wells Fargo’s malpractice, which went unchallenged for over three years, shows just how important it is for homebuyers to pay attention to the myriad number of closing costs listed in the Closing Disclosure. [See RPI Form 402]
Buyer’s agents can help by directing clients to study carefully the Closing Disclosure received three or more days before closing, and compare it with the Loan Estimate received within three days of the lender receiving the buyer’s mortgage application. There should not be substantial differences between the two documents.
Even then, homebuyers need to be encouraged to speak up when a charge doesn’t make sense. Lenders are human, after all, and can make mistakes just like anyone else. If a buyer is concerned their query will delay closing or cause the sale to fail, remind them to read the Closing Disclosure as soon as they receive it so any necessary changes to the disclosure can be made in advance of closing.