It always pays to shop around. If more mortgage customers didn’t choose to borrow from the trusted institution that held their savings and checking accounts without question, it seems that these customers could have found lower interest rates, particularly if these borrowers were customers of Wells Fargo. The Federal Reserve is alleging that between 2004 and 2008, Wells Fargo sold mortgages with higher interest rates to customers who should have qualified for lower interest rates and changed information on documents, such as income, to make it appear as if these customers didn’t qualify for better rates.
As a result, the Fed is slapping Wells Fargo on the wrist with an $85 million fine and a directive to compensate up to 10,000 affected customers who may receive as much as $20,000 in restitution.
The Fed says that the Wells Fargo Financial subsidiary encouraged its employees’ unethical practices by having sales quotas. The bank doesn’t need to admit they did anything wrong, but in their marketing message, Wells Fargo says the actions of a select number of employees shouldn’t reflect poorly on the company as a whole. The $85 million amounts to just over 2% of Wells Fargo’s second quarter profit, and the bank had already set money aside to compensate the affected customers. A fine of 2% of a company’s quarterly profit is hardly a penalty.
While a financial institution should not lie about your finances to trap you into an expensive loan, potential borrowers should take a few steps to prevent themselves from a bank that might take advantage of them.
- Know your credit. Get a free credit score, free credit reports from AnnualCreditReport.org, and analyze your credit report. There should be no surprises when you apply for a mortgage, and with this knowledge, you should be able to tell if a mortgage broker is lying to you about your score or your credit history.
- Shop around. Yes, it’s difficult to find the right mortgage. It’s easy to be tempted into walking into the bank where you do business and ask to speak to their mortgage consultant. You should do this, but your shopping shouldn’t stop here. Find other local banks, community banks, and credit unions. Look online.
- Know the market. Be aware of the best mortgage interest rates. While companies often advertise their absolute best rates that only those with perfect credit will receive, this should give you an idea of the rates you should expect and prevent you from accepting a deal where the rate is unreasonable.
The conversation usually turns to determining who is to blame: the uninformed customers who end up paying more than they need to, the bank’s representatives who are viewed as trusted experts rather than salespeople trying to meet quotas, or the bank’s management that sets the policy and the environment. Everyone shares some blame, but as a customer, one can’t control anything other than your own actions and reactions to other people. Put yourself in the best situation as possible by understanding your own financial situation and recognizing that when you deal with any company, they are trying to sell you something and not always looking out for your best interest.
Wells Fargo is the bank where, through a series of acquisitions and mergers, I’ve been keeping most of my non-online deposits and active checking accounts for my entire adult life, but if I thought I had been misled I would have no problem moving my accounts elsewhere. I do not have a mortgage or any type of loan from Wells Fargo.