Federal Reserve issues a consent cease and desist order and assesses civil money penalty against Wells Fargo

The Federal Reserve Board on Wednesday issued a consent cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. The order addresses allegations that Wells Fargo Financial employees steered potential prime borrowers into more costly subprime loans and separately falsified income information in mortgage applications. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers.

The $85 million civil money penalty is the largest the Board has assessed in a consumer-protection enforcement action and is the first formal enforcement action taken by a federal bank regulatory agency to address alleged steering of borrowers into high-cost, subprime loans.

Wells Fargo Financial--a once-active, non-bank subsidiary of Wells Fargo--made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans. The order addresses allegations that Wells Fargo Financial sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.

These practices were allegedly fostered by Wells Fargo Financial's incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs. These deficiencies allegedly constitute unsafe and unsound banking practices and unfair or deceptive acts or practices that are prohibited by the Federal Trade Commission Act and similar state laws. In agreeing to the order, Wells Fargo did not admit any wrongdoing. The order requires Wells Fargo to compensate borrowers affected by these practices. To identify prime-eligible borrowers with cash-out refinancing loans who were subject to improper steering, Wells Fargo is required to reevaluate the qualifications of all borrowers who took out a subprime, cash-out refinancing loan between January 2006 and June 2008 to account for certain specific steering techniques. To identify Wells Fargo Financial borrowers whose income information was falsified without their knowledge, Wells Fargo is required to set up a procedure for potentially affected borrowers to show that their actual income at the time did not qualify them for the loans they were granted. Wells Fargo is required to provide notice of this procedure to all borrowers who obtained cash-out refinancing loans between January 2004 and June 2008 at a Wells Fargo Financial office where there is evidence that sales personnel at that office altered or falsified borrowers' income information.

These compensation plans must be approved by the Federal Reserve. An independent, third-party administrator will review determinations about the eligibility of individual borrowers for compensation and the amounts of compensation provided. The Federal Reserve will also monitor compliance with the approved plans. Failure to comply with the plans will constitute a breach of the cease and desist order.

The amount of compensation provided to individual borrowers will depend on a number of factors, including differences between what borrowers paid and what they should have paid in terms of origination points, interest payments, fees, and penalties. Until specific determinations of harm to individual borrowers are made, it is difficult to determine the total amount of compensation provided to borrowers. Based on preliminary estimates, the amount of compensation that each eligible borrower will receive ranges between $1,000 and $20,000, but some eligible borrowers may receive less than $1,000 and others may receive more than $20,000. The number of borrowers who may receive compensation under both plans is estimated to be between 3,700 and possibly more than 10,000.

Further information for borrowers may be found at www.wellsfargo.com/mortgage.

In addition to the monetary components of the settlement, Wells Fargo is required to improve oversight of its anti-fraud and compliance programs and incentive compensation and performance management policies for personnel who sell and underwrite home mortgage loans. The Board also has issued consent orders against 16 former Wells Fargo Financial sales personnel prohibiting them from becoming employed in the banking industry. The Board has also issued a consent cease and desist order against another former Wells Fargo Financial sales person prohibiting future improper conduct.

For media inquiries, call 202-452-2955.

2011 America the Beautiful Quarters Three-Coin Set™ - Gettysburg National Military Park Available July 27

WASHINGTON - The United States Mint will begin accepting orders for the 2011 America the Beautiful Quarters Three-Coin Set - Gettysburg National Military Park (Pa.) on July 27, 2011, at noon Eastern Time (ET).  The set contains two uncirculated quality Gettysburg National Military Park quarters - one each from the United States Mint facilities at Philadelphia and Denver - and one proof quality coin from the United States Mint at San Francisco.  The coins are mounted on a durable plastic card that includes a brief description of the site and the coin design, as well as a Certificate of Authenticity on the back.

The 2011 America the Beautiful Quarters Three-Coin Set - Gettysburg National Military Park is priced at $14.95.  To place an order, visit http://www.usmint.gov/catalog or call 1-800-USA-MINT (872-6468).  Hearing- and speech-impaired customers with TTY equipment may order by calling 1-888-321-MINT (6468).  A shipping and handling fee of $4.95 will be added to all domestic orders. 

The America the Beautiful Quarters Three-Coin Sets are also available for purchase through the United States Mint's Online Subscription Program.  For more information about this convenient ordering method, please visit http://www.usmint.gov/catalog.

The United States Mint, created by Congress in 1792, is the Nation's sole manufacturer of legal tender coinage and is responsible for producing circulating coinage for the Nation to conduct its trade and commerce.  The United States Mint also produces proof, uncirculated and commemorative coins; Congressional Gold Medals; and silver, gold and platinum bullion coins.

Note:  To ensure that all members of the public have fair and equal access to United States Mint products, orders placed prior to the official on-sale date and time of July 27, 2011, noon ET shall not be deemed accepted by the United States Mint and will not be honored.  For more information, please review the United States Mint's Frequently Asked Questions, Answer ID #175.

Consumer Financial Protection Bureau Releases Report on Issues Facing Users of International Money Transfers

Report Recommends Principles for Informing Consumers About Exchange Rates; Examines Potential Use of Remittance Data in Credit Scores

WASHINGTON – A report released today by the Consumer Financial Protection Bureau (CFPB) recommends principles for maximizing consumers’ ability to receive and use exchange rate information when making remittance transfers, and examines the incentives and challenges related to using remittance data in credit scores.

Each year, consumers in the United States send tens of billions of dollars to family members, friends, businesses, and others abroad through remittance transfers – electronic transfers from U.S. senders to recipients in foreign countries. This report, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), analyzes two subjects related to remittance transfers: the transparency and disclosure to consumers of exchange rates used in remittance transfers, and the potential for using remittance histories to enhance the credit scores of consumers.

“International money transfers can be a vital link to family members and friends abroad,” said Elizabeth Warren, Special Advisor to the Secretary of the Treasury on the CFPB. “Information about exchange rates has the potential to help remittance senders make smarter choices about which services best meet their needs. And if remittance histories can improve the predictiveness of credit scores, then supplementing credit files with remittance data may give some consumers new opportunities to establish a credit history.”

Remittance Transfers and Exchange Rates

The Dodd-Frank Act will require remittance transfer providers to disclose, in most circumstances, the exchange rates they use and other information at the time that consumers request remittance transfers and when they pay for those transactions. The Board of Governors of the Federal Reserve System has proposed rules to implement those and other new requirements related to remittance transfers. The CFPB will assume responsibility for issuing final disclosure rules and will review comments received by the Board following the close of the comment period on July 22.

The CFPB’s report  recommends that, with respect to exchange rates, policymakers and other stakeholders observe four principles for enhancing consumers’ ability to receive and use exchange rate information:  (1) design, test, and use disclosures to maximize consumer comprehension; (2) facilitate consumers’ comparisons of remittance offerings; (3) adapt disclosures to the growing variety of channels that consumers use to initiate remittance transfers; and (4) couple information about exchange rates with an indication or estimate of the combined effects of fees and the exchange rate.

The report finds that implementation of some of the Dodd-Frank Act’s new requirements related to remittance transfers – including mandatory disclosures of the exchange rate used – could shed light on any need for additional exchange rate transparency measures. The CFPB also recommends that any additional transparency measures be evaluated and considered together with the range of mechanisms for increasing the competitiveness of the remittance transfer market, or promoting other consumer protection goals.

Remittance Transfers and Credit Scores

Credit files do not routinely include remittance data. If remittance histories can help assess or predict the credit risk that consumers pose to lenders, adding such data to credit files could produce a change in the credit scores of some remittance senders.

If remittance histories are predictive of credit risk, the addition of remittance data might also allow credit scores to be generated for some consumers who are otherwise unscorable.

To use remittance histories in credit scores, market participants would need to adjust their business systems and processes to adapt to and make use of the new data. If remittance histories are predictive, then any remittance-based credit scores that were developed might have particularly positive implications for some consumers born outside of the United States. These consumers send a large proportion of remittance transfers. Earlier research suggests that certain foreign-born individuals may be disproportionately likely to have credit histories that are insufficient to generate credit scores. In other cases, existing credit data may overestimate the credit risk such individuals pose to lenders. But the actual impact of any remittance-based credit score would depend on the business model, the scoring model, the data used, and the individual. In some cases, credit scores might increase; in other cases, they might remain the same or decrease.

The report discusses the potential for remittance histories to inform credit scores, and describes planned CFPB research regarding the relationship between remittance histories and credit scores. A critical question for this research will be the extent to which remittance histories can be used to predict the credit performance of those without a credit score or to improve credit scores’ predictiveness with respect to other consumers.

Federal Reserve offers $5 billion in 28-day term deposits through its Term Deposit Facility

On Monday, July 25, 2011, the Federal Reserve will offer $5 billion in 28-day term deposits through its Term Deposit Facility. As noted in the Federal Reserve Board's September 8, 2010 release, this offering is part of ongoing small-value operations designed to provide eligible institutions with an opportunity to become familiar with term deposit operations. Additional information regarding the auction is listed below; the auction will be conducted as specified in this announcement, Regulation D, and the terms and conditions of the Term Deposit Facility.

Competitive bids submitted at the stop-out rate will be pro-rated and will be rounded to multiples of $10,000. Normal rounding convention will be used, except that awards under $10,000 will be rounded to $10,000.

Non-Competitive bids are allowed in this auction. All non-competitive bids will be automatically awarded in full at the stop-out rate of the competitive auction. The minimum amount for a non-competitive bid is $10,000; the maximum amount is $5,000,000 and should be submitted in increments of $10,000. Non-Competitive bids must be submitted between 10:00 a.m. ET and 2:00 p.m. ET on the auction date.

Owner of Miami Company Sentenced to 63 Months in Prison for Scheme to Defraud the U.S. Export-Import Bank

WASHINGTON – The owner of an investment planning company in Miami was sentenced today to 63 months in prison for his role in a scheme to defraud the Export-Import Bank of the United States (Ex-Im Bank) of $5.2 million, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and Osvaldo L. Gratacos, Inspector General of the Ex-Im Bank.

Carlos L. Morano, 51, was sentenced by Judge Cecilia M. Altonaga in U.S. District Court in Miami.   In addition to his prison term, Morano was sentenced to three years of supervised release and was ordered to pay $5.2 million in restitution and $6.8 million in forfeiture.  Morano pleaded guilty on May 6, 2011, to one count of conspiracy to commit wire fraud and one count of wire fraud in connection with a scheme to defraud the Ex-Im Bank of approximately $5.2 million.   Morano, a naturalized U.S. Citizen, most recently resided in Buenos Aires, Argentina, until his arrest on Nov. 8, 2010, in Atlanta, where he arrived after an international flight from Argentina.   The warrant for his arrest was obtained by Ex-Im Office of Inspector General (OIG) Special Agents.

According to court documents, Morano was the owner of CLM Financing and Investments, an investment planning company located in Miami that purported to be in the business of brokering loans and providing financial advice to Florida exporters.   During his plea hearing, Morano admitted that he assisted 17 exporters obtain fraudulent loans that were insured by the Ex-Im Bank.   According to court records, Morano and others misappropriated the loan proceeds for their own use and benefit.  From 2007 through 2010, Morano, through his company CLM, charged exporters up to $35,000 to prepare fraudulent loan applications and financial statements.   Morano admitted that he instructed the exporters on how to prepare false purchase orders, invoices, account receivable forms, and bills of lading to falsely represent to various lending banks and the Ex-Im Bank the purchase and export of U.S. goods to buyers in South and Central America.   Morano often charged the exporters a monthly service fee to continue providing false shipping documents and financial documents that would pass Ex-Im Bank review.  

According to court records, all of the loans involving Morano were fraudulent.   As a result of the fraud, the loans went into default, causing the Ex-Im Bank to pay claims losses to the lending banks in the amount of $5,219,756.

The Ex-Im Bank is an independent federal agency that helps create and maintain U.S. jobs by filling gaps in private export financing.  The Ex-Im Bank provides a variety of financing mechanisms to help foreign buyers purchase U.S. goods and services.

The case is being prosecuted by Trial Attorneys Patrick Donley and William Bowne of the Criminal Division’s Fraud Section.   The case was investigated by the Ex-Im Bank OIG.

Minneapolis Man Pleads Guilty to Making False Statements in Trevor Cook Ponzi Scheme

MINNEAPOLIS—Earlier today in federal court in Minneapolis, a 40-year-old Minneapolis man pleaded guilty to making false statements to federal investigators in a multi-million-dollar Ponzi scheme orchestrated by Trevor Cook. Jon Jason Greco pleaded guilty to one count of making a false and material statement in connection to the crime. Greco, who was indicted on March 22, 2011, entered his plea before United States District Court Chief Judge Michael J. Davis.

In his plea agreement, Greco admitted that on July 27, 2010, he lied to investigators about foreign currency and coins he had placed in a locker at the Mall of America. The currency and coins were assets the government wanted to seize. Cook pleaded guilty on April 13, 2010, to federal criminal charges regarding the operation of a foreign currency trading scam that defrauded more than 900 investors. Pursuant to the terms of his plea agreement, Cook committed to turning over the proceeds of the fraud. On June 24, 2010, Greco was interviewed by investigators regarding the location of those assets.

On July 27, Greco admitted that he told investigators the items belonged to him, a gift from a deceased uncle, and did not belong to Cook. However, Greco knew the items belonged to Cook. Because of Greco’s false statements, the U.S. failed to recover approximately $6,000 of the assets. Seized assets were used to repay victims of Cook’s fraud.

For his crime, Greco faces a potential maximum penalty of five years in prison. Judge Davis will determine his sentence at a future hearing, yet to be scheduled. In August of 2010, Cook was sentenced to 300 months in federal prison for orchestrating the scam itself.

This case is the result of an investigation by the Internal Revenue Service-Criminal Investigation Division and the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Tracy L. Perzel.

Treasury Elects Directors to CPP Banks’ Boards of Directors

WASHINGTON - The U.S. Department of the Treasury has exercised its right to elect John S. Poelker and Guy Rounsaville, Jr. to the First Banks, Inc. (First Banks) board of directors and Gerard M. Thomchick to the Royal Bancshares of Pennsylvania, Inc. (Royal Bancshares) board of directors.  As participants in Treasury’s Capital Purchase Program (CPP), First Banks and Royal Bancshares entered into securities purchase agreements with Treasury.  These agreements provide Treasury the contractual right to nominate up to two members to the board of a CPP recipient in the event that an institution misses a sixth dividend or interest payment on the preferred stock issued to Treasury.

John S. Poelker has spent more than 40 years in the financial services industry as both an executive and a consultant and has served in industry leadership positions throughout his career. From 1997 to 2005, Poelker served as the Chief Financial Officer of Old National Bancorp in Evansville, Indiana.    

Guy Rounsaville, Jr. is a lawyer with over 40 years of experience in the financial industry. He has served as the General Counsel of Wells Fargo & Company, Visa International and LaSalle Bank Corporation.  Mr. Rounsaville currently serves as the Director of Diversity at Allen Matkins Leck Gamble Mallory & Natsis LLP (Allen Matkins), a California law firm with approximately 230 attorneys.

Gerard M. Thomchick has more than 25 years of experience working in Pennsylvania’s banking sector.  He spent a number of years at First Commonwealth Financial, where he served in the role of Chief Operating Officer and Senior Executive Vice President, as well as President and Chief Executive Officer of a subsidiary bank.  He was previously Chairman of the Governance Committee of the Federal Home Loan Bank of Pittsburgh.

Board members elected by Treasury will have the same fiduciary duties and obligations to the shareholders of the financial institutions as any other board members.  They cannot be government employees, and they will not represent the United States government.  Treasury worked with executive search firm Spencer Stuart to help identify potential directors.