Wells Wins Federal Ruling on Loans

Wells Fargo & Co.’s mortgage unit should be able to operate in California unfettered by state regulation, a federal judge ruled late Friday.

U.S. District Judge Garland Burrell Jr. ruled that the U.S. Office of the Comptroller of the Currency has the exclusive right to regulate national banks and their subsidiaries, settling a long-running dispute between Wells and the California Department of Corporations, which wanted to impose state usury laws on Wells Fargo Home Mortgage Inc.

Andre Pineda, deputy commissioner of the Department of Corporations, said the state would appeal the ruling. The state Constitution, he said, requires regulators to enforce a state law unless an appellate court has determined that enforcement is prohibited by federal law or regulations.

At issue is a California law that prohibits mortgage lenders from charging more than one day’s interest before a mortgage deed is recorded. Federal law allows lenders to start charging interest the moment the loan is funded, which can be several days -- or even weeks -- sooner.

San Francisco-based Wells Fargo hailed the ruling as a victory for consumers, saying they would benefit from consistent lending standards nationwide.

“Customers expect to begin paying interest as soon as they get the money,” said Wells Fargo Chief Executive Richard Kovacevich. “That’s the fair and most practical way to do it. Forty-nine other states and our [federal] regulators all agree.”

However, the state and consumer groups previously have contended that federal lending regulation should serve only as a starting point, to be supplemented by tougher state rules if needed.

“Wells Fargo should have told consumers that they were going to start charging them more than one day of per diem interest,” Pineda said. “Instead, they advertised their California license and fooled consumers into thinking they were complying with California law.”

State officials last week revoked Wells’ California mortgage lending license for failing to comply with the state law, but the bank is making and servicing home loans as usual under its OCC license.