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News Release: 03-01
GRAY DAVIS, Governor
Date: 01/10/03
DEMETRIOS A. BOUTRIS, Commissioner
Department of Corporations Files $38 Million Suit Against Wells Fargo Financial
Instant Loan Checks Result in $871,000 In Excess Interest for Unsuspecting Customers
Sacramento, January 10, 2003 — The Davis Administration today announced that the Department of Corporations has filed suit in the Superior Court of Sacramento County seeking civil penalties of up to $38.8 million to stop Wells Fargo Financial California, Inc., a licensed consumer finance lender, from overcharging its "instant loan check" customers and to void their overcharged loans.
"In 2001, the Department of Corporations determined that Wells Fargo Financial was charging 15,000 of its customers predatory interest rates. After making over $533,000 in refunds, Wells Fargo Financial turned around and overcharged many of the same consumers another $338,000 in 2002," said Commissioner Demetrios A. Boutris. "This time, warning Wells Fargo Financial is not enough. We believe that these violations are willful and that Wells Fargo Financial should have no right to collect or receive any principal, charges or recompense in connection with these transactions. Many of the people who cash 'instant loan checks' that they received unsolicited in the mail are already financially strapped enough without being overcharged by an affiliate of the nation's fifth-largest bank. California consumers deserve better treatment than this."
Instant loan checks are a marketing tool used by Wells Fargo Financial, other lenders, and financial institutions. These checks resemble bank checks and are mailed to potential customers. Once the recipient of the Wells Fargo Financial instant loan check endorsed and cashed the check, the recipient and Wells Fargo Financial were bound by the terms specified in the loan documents that accompanied the check. These loan documents purported to disclose to customers the cost of borrowing the money, including the annual percentage rate and the monthly rate of charge.
In July of 2001, the Department's routine regulatory examination revealed that Wells Fargo Financial was charging too much interest on 15,000 loans. After a Department of Corporations-directed self-audit, Wells Fargo Financial made $532,988.35 in refunds and promised to never do it again. In April of 2002, the Department examined the company again and learned that Wells Fargo Financial had overcharged the same customers who still had accounts with the company another $338,023.63, suggesting willful violation.
California Financial Code Section 22750 states, "If any amount other than, or in excess of, the charges permitted by this division is willfully charged, contracted for, or received, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction."
Last year, the Department of Corporations worked with state Sen. Costa to draft and pass legislation that would add consumer protections for instant loan checks loans. Effective January 1, 2003, Senate Bill 1926 (Chapter 772, Statutes of 2002) aims to protect borrowers from identity theft and deceptive practices by prohibiting the distribution of instant loan checks unless certain requirements are met, including disclosures to consumers and limitations on negotiability.
The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov or call 1-866-ASK-CORP (1-866-275-2677).
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