Wells Fargo & Co., proud of its reputation as a bank that values customer service, suddenly finds its lending practices under attack by regulators in its home state of California and consumer advocates across the country.
The reason: More and more cases like that of Christina Bothamley have been cropping up lately.
"I'd hate to see anybody go through what I've been through," she says of her experience with the nation's No. 1 mortgage lender.
Working the phones from her Rancho Palos Verdes home, Bothamley says, she struggled for a month and a half to get Wells to repay a $213.96 overcharge on a mortgage refinancing. The problem arose when she and her husband, Robert, decided to refinance their mortgage for a second time last year to take advantage of tumbling interest rates.
They weren't expecting trouble. The Bothamleys were longtime Wells customers, having bought their home 14 years ago with a loan from Norwest Mortgage, which later became part of Wells Fargo. Besides, Wells was refinancing its own mortgage.
But the Bothamleys spotted something that most borrowers probably would overlook: For a period of three days, they were charged interest on both their old mortgage and the refinanced loan.
Bothamley said she was put on hold more than half a dozen times while calling Wells' out-of-state phone centers before finally getting the matter resolved. One day she was contacted separately by two Wells employees -- one offering to refund interest for two days, the other for three.
By the time the full refund came, she says, "I figure with the time I put in on it, I probably got about 25 cents an hour."
Bank executives blamed the problem, which they describe as unusual, in part on stresses caused by the recent wave of refinancings. They add that their internal surveys of customer satisfaction remain overwhelmingly favorable despite the unprecedented surge in business.
"This should never happen," Peter J. Wissinger, chief executive of Wells Fargo Home Mortgage Inc., says of Bothamley's predicament.
But to Wells Fargo's critics, it has a familiar ring. California regulators, community groups and officials at some consumer organizations are asking whether Wells, the No. 2 bank in California in terms of loans and deposits, is in a variety of small ways putting its need for profit ahead of the interests of its customers.
The U.S. Office of the Comptroller of the Currency, which regulates national banks, reports that consumer gripes about Wells grew much faster last year than for the industry as a whole.
The office says it received 11% more complaints about Wells last year than in 2001, while total industry complaints were flat. Mortgage-related complaints rose by 20.2% at all national banks last year, the office says, while complaints about Wells mortgages jumped 70.6%.
There seems to be "a pattern and practice of nickel-and-diming consumers, and in the case of the mortgages a lot more, hundreds of dollars," says Edmund Mierzwinski, director of consumer programs for the U.S. Public Interest Research Group.
Mierzwinski says his group repeatedly has been at loggerheads with Wells in California, where in recent years the bank helped lead successful legal challenges to local ordinances banning automated teller machine fees.
Wells' chief executive, Richard M. Kovacevich, bristles at suggestions that there is a pattern to what he calls "random events in separate businesses." He said Friday that state regulators have turned what should have been quietly settled issues into overblown public disputes.
With 20 million customers -- 3 million of them in California -- complaints are inevitable, Kovacevich contends. But he says his company has scrupulously followed laws in sensitive areas such as sub-prime lending and has done an "unbelievably good job" of servicing borrowers at a time of unprecedented home-loan volumes.
"How do you think we became the No. 1 originator" of mortgages, he asks, "if not great service?"
But California regulators see it differently. They contend that Wells is defying a state law that prohibits charging interest on mortgage loans until the day before a loan is officially recorded. And they are threatening to strip Wells of its California home-lending license.
Wells executives say the bank is taking a principled stand against a flawed law that's impossible to comply with. Wells also contends that, as a nationally chartered bank, it is governed only by federal banking laws -- a position U.S. regulators agree with.
"Why should you want us to go to a bunch of expense to comply with something we don't have to comply with?" asks Kovacevich, who says his customers and regulators in 49 other states agree that interest should start when the borrower gets the funds, not when the loan is recorded.
But California officials point out that rival banks are complying with the state law while waiting for the courts to decide which rules apply.
Wells' top competitor in California, Bank of America Corp., and regulators at the state Department of Corporations "are presently working toward meeting the requirements of California law while recognizing that a federal court will be ruling soon," says Deputy Corporations Commissioner Andre Pineda. Bank of America declined to comment.
Meanwhile, Wells Fargo Financial Inc., a Wells subsidiary that specializes in lending to sub-prime borrowers -- those with spotty credit records -- is drawing its own fire from consumers and regulators.
The Department of Corporations is trying to void about $24 million worth of small "instant loan" checks sent out by Wells, having accused the finance company of willfully overcharging 15,000 Californians. The state acted after Wells told regulators that it had fixed minor problems in the way it disclosed interest rates, only to have a new set of errors beset the same customers.
Wells Fargo Financial Chairman Daniel W. Porter acknowledges that the second set of mistakes was embarrassing, but he maintains that the regulators' move is a gross overreaction to innocent errors. He notes that Wells has fully refunded the overcharges.
Complaints about Wells' sub-prime lending unit also have come from the Assn. of Community Organizations for Reform Now, the lending watchdog group known as ACORN, whose national spokesman David Swanson accuses Wells Fargo Financial of having "the most glaring" loan abuses of any national bank affiliate.
On Friday, ACORN's Minnesota chapter named Wells Fargo its "Shark of the Year," complaining of unfairly high rates and fees and saying lending abuse "isn't just a problem of fly-by-night operators."
Porter, stressing that his finance company strives to help average people during tough times, dismissed ACORN as "absolutely unaware of the facts and apparently not interested in them."
Among a group of borrowers represented by ACORN Minnesota are Rick and Lynn Morneau of Minneapolis, whose tough times included Lynn's major surgery last year and the accompanying medical bills. They contend that Wells Fargo Financial concealed hefty fees and interest rates on two second mortgages last year, then tricked them into refinancing a 7.785% first mortgage with another lender into a new 12% loan to pay off their previous debts.
Among the items financed were a Chevy Blazer and Silverado that Wells had repossessed from other borrowers and encouraged them to buy, the Morneaus say.
Loan documents show the Morneaus had 10% added to their second mortgages to cover the upfront finance charges that the industry calls "points" -- a level that industry watchdogs generally consider excessive. In addition, they had even larger amounts tacked on for single-premium credit insurance, a controversial product often associated with abusive lenders.
"I was just sick" upon learning the full details of the refinancings, Lynn Morneau says.
Porter says he can't discuss details of individual customer complaints. But he says he is confident his company worked hard to help the Morneaus, complied with all lending laws and clearly explained the transactions to them.
He says Wells Fargo Financial, like most sub-prime lenders, has phased out single-premium credit insurance in the last year and now charges a maximum of five points on residential loans, the amount the Morneaus were charged on their final Wells loan in November.
Despite the recent blows to its image, Wells is still held in high regard on Wall Street. On Feb. 6, the day after the Department of Corporations announced its intent to revoke Wells' California residential-lending license, stock analysts released a flood of reports highlighting the bank's contention that it is immune from state banking laws. Wells shares, which had tumbled on the regulatory action, promptly rebounded.
John M. Kline, an analyst who follows Wells for Sandler O'Neill & Partners, raised his rating on Wells to "buy," saying it's unlikely that Wells' mortgage banking license will be revoked and adding that the regulatory action "may be political posturing."
Moreover, some fair-lending advocacy groups praise Wells' philanthropic activities and lending to minority businesses.
In the end, though, what may count most for Wells is the battle for the hearts and wallets of consumers. The bank, at which $333 billion in mortgage lending helped drive a 59% increase in profit last year, clearly can't afford to offend consumers such as Christina Bothamley.
For now, she remains a customer, maintaining a sense of humor about her quest for a refund of the double interest charges.
"They kept playing those messages," she recalls of her time on hold, "the ones that say, 'Your call is important to us.' "
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Wells Fargo, the No. 2 bank in California based on deposits, has come under fire recently from regulators and consumer groups.
Percent of total bank deposits in California, 2002
1 Bank of America: 20.7%
2 Wells Fargo: 14.6%
3 Washington Mutual: 13.5%
4 Citigroup: 5.7%
5 UnionBanCal: 5.1%
6 Golden West Financial: 4.0%
7 BNP Paribas Group: 3.0%
8 Comerica: 2.6%
9 U.S. Bancorp: 1.9%
10 City National: 1.7%
Source: SNL Financial