Inner City Press' Wells Fargo Watch
2000: National Bank of Alaska; Security First; 2001

          Click here for ICP's front page    Click here for ICP's current Wells Watch

      Inner City Press / Community on the Move (ICP), along with other community organizations, has become increasingly concerned by Wells' involvement in questionable subprime (high interest rate) lending.    On November 19, 2001, ICP filed a 24-page comment with the Federal Reserve Board, opposing Wells Fargo's application to acquire Marquette and other banks owned by Carl Pohlad -- a total of 117 branches which overlap with Wells in 20 markets.  As documented in the portions of ICP's comments reproduced below, beyond antitrust and branch closures, we've found that Wells' mortgage lending disparities were worse in 2000 than in 1999, and have presented the Fed with evidence of Wells Fargo Financial loans at interest rates up to 39%, and of Wells' connections with the check cashing empire of Dollar Financial Group, and the payday lender Ace Cash Express. Not pretty... On August 7, 2000,  ICP filed a 21-page comment with the Federal Reserve Board, opposing Wells Fargo's application to acquire First Security and its 330 bank branches, under the Community Reinvestment Act and otherwise.   See, e.g.“Wells Fargo Merger Target of Las Vegas, N.Y. Critics,” by Richard N. Velotta, Las Vegas Sun, August 15, 2000;  “Group Challenges Wells Fargo Merger,” by Max Knudson, The Deseret News (Salt Lake City), August 7, 2000, Pg. D6; and “Group Opposing Deal Calls Wells Predator,” by Rob Garver, American Banker, August 8, 2000.  Click here for ICP's 2003 Wells Fargo advocacy.

Update of July 14, 2003: Here's a consumer's July 11, 2003, letter to Wells, cc-ed to Inner City Press:

Dear Mr. Alan Johnson, President, Wells Fargo Home Equity:

I am writing to complain about Wells Fargo's deceptive home equity operations. To give you some background: I had a home equity loan with Wells Fargo for several years. I paid the loan off in January 2003 because of very poor customer relations.

These relations culminated in a phone conversation with a representative of your bank when she told me she could not provide the figures to quote me the amount of interest in dollars that I would be paying over the future of the loan. I was told that it "was a complicated formula and I would have to figure it out myself".

Since I have paid the loan off, I have been besieged with offers from your company to reopen the loan; I have refused all offers to deal business with your company. Over the past several months, I have been receiving a monthly bill from your company for $50.00. There is no explanation on the bill for this charge.

When I called your very rude employees, I was told this was my charge for a "home equity access fee". When I explained that I did not want this service, I was told I would have to send a fax to your company telling them in writing that I did not want this service. They would not do this via phone message.

Mr. Johnson, isn't it a bit ridiculous to have to send a letter or fax telling a company that you do not want a service that you never requested in the first place? A service that I am currently being charged $50.00 monthly? What if other companies were to adopt this same practice? I work in the healthcare industry; we do not send indiscriminate bills out to our patients, with a caveat of requesting they notify us in writing if they do not want this service.

So here is it in writing: I do not want this service, I do not wish to do business with Wells Fargo, ever again. Please purge me from your mailing, e-mail and telephone call listings. I would also like a written explanation as to why this policy exists within your organization. Thank you.

Sincerely, [ ]

CC: FDIC, Inner City Press

   We'll have more on Wells in the near future. Until then, for or with more information, contact us.

Update of May 26, 2003: On May 20, Wells Fargo announced a proposal to buy Pacific Northwest Bancorp for $591 million. Then on May 22, Wells announced a smaller deal for Colorado's Two Rivers Corp., which owns the Bank of Grand Junction. It operates three branches around Grand Junction... Also on May 20, Wells announced that its general counsel Stanley Stroup will retire at the end of 2003. He "was very instrumental behind the scenes in helping break down (Great) Depression-era barriers among banking, brokerage and insurance industries," said Chairman and Chief Executive Dick Kovacevich in a press statement. "He also helped influence national legislation that created interstate banking." Well now. Jim Strother, a Wells Fargo deputy general counsel since June 2001, will replace him...

Update of May 5, 2003:  The California Department of Corporations on May 2 announced it has revoked Wells Fargo's state mortgage lending license, for violating California law. "If consumers were particularly savvy, they (should) see that Wells was advertising our license, and that they were obtaining the same protections from Wells as from any other licensed lender," said the Department's Andre Pineda. "The simple fact is, in the last couple of years, a consumer who thought that would be wrong." California wants Wells Fargo to issue refunds to overcharged borrowers.

Update of January 13, 2003: It has been too long, since we've reported on Wells Fargo in this space. The trigger of this report is the state of California's Jan. 10 accusation that Wells is a predatory pricer. We agree, and now report the following: at Wells Fargo Financial, the company's subprime lender, the lowest fixed interest rate being offered is 11.5% -- regardless of the credit score of the applicant. Ironically, even an applicant with a sub-600 FICO score can, through Wells Fargo Mortgage's "non-conforming" division, receive a rate between eight and nine percent. The morale of the story? If you approach Wells through the storefront office of Wells Fargo Financial, you will be overcharged in a predatory fashion. We've also learned that when Wells Fargo Financial employees leave the company, they are told that if at their next employer they refinance any Wells Fargo loans, they will be sued for $2,000 for each loan. Pretty, ain't it?

Update of October 28, 2002: on October 24, Wells Fargo announced a proposal to buy Minneapolis-based Towle Financial Services/Midwest Inc., a mortgage banking company that originates and services mortgages for life insurance firms, pension funds, real estate investment trusts and others. Towle holds a loan portfolio of $260 million, according to a Wells spokesperson. Wells already has a $30 billion servicing portfolio....

Update of August 5, 2002: on July 31, Wells Fargo announced a deal to acquire " private investment advisory firm" Nelson Capital Management; financial terms weren't disclosed.

Update of February 18, 2002: From the department of "better late that never," Inner City Press has just received a response from the Department of Justice to a FOIA request regarding the Federal Reserve Board enforcement (or non-enforcement) of antitrust laws upon Wells Fargo and its predecessor, Norwest. Among the documents received is correspondence in which Wells Fargo tries to justify having shifted deposits out of branches it had committed to divest. Wells claims that "if any procedural lapses did occur" they were "inadvertent and isolated." The Fed staffers who apparently agreed include Scott Alvarez, Dean Amel and Gordon Miller. Who knows -- maybe Wells' argument are not as ludicrous as they look. It's impossible to judge, since the most substantive portions of the letters are still redacted, and since the Fed itself never provided these letters to ICP or anyone else, despite outstanding FOIA requests. This may have to be revisited in a future proceeding.  Until next time, for or with more information, contact us.

Update of February 4, 2002:  Wells and woods: an SEC filing made public on January 28 disclosed that Wells Fargo has dropped its stake in Willamette Industries Inc. three percentage points to 9.4 percent. After a 14-month takeover battle, last week Willamette tentatively accepted a $6.1 billion acquisition offer from its larger rival Weyerhaeuser Co....

Update of December 24, 2001: Anxious to give Wells Fargo a Christmas present, the Fed rushed to approve Wells' deal for Carl Pohlad's banks on December 20. The rush is reflected in a series of Fed "memos to file," reflecting three telephone calls from Fed staff to Wells in the week prior to the approval. The Fed mailed copies of these memos to ICP such that they arrived after the Board hauled off and approved the deal, then split for vacation. From the Order:

The HMDA data for 1999 and 2000 indicate that the percentage of Wells Fargo's housing-related loans to African-American and Hispanic borrowers and in predominantly minority census tracts generally was comparable with or lagged that of the aggregate of lenders in many of markets reviewed. In addition, this HMDA data show that Wells Fargo's denial disparity ratios for African-American or Hispanic applicants generally were comparable with or higher than the denial disparity ratios for the aggregate of lenders with respect to the total HMDA-reportable loans in these markets.

    In reviewing Wells Fargo's subprime lending -- the review is confined to a single footnote, Note 62, the Fed claims that "Wells Fargo has provided information about steps that WFHM and WFFI and its subsidiaries take to ensure that applicants who qualify for conventional loans are given the opportunity to apply for prime credit products." But Wells Fargo admitted that its subprime lender Island Finance has no such protections in place. The Fed says it has forwarded the comments to the OCC, FTC, HUD and DOJ. We'll see... For or with more information, contact us.

Update of December 10, 2001: In response to the comment ICP filed on November 19 on Wells Fargo's application to acquire Marquette and other affiliates banks (summarized below on this page), the Federal Reserve Board on November 23 sent Wells Fargo a letter requesting answers to seven questions. Some of the questions explicitly referenced ICP's Comment; some other questions were apparently derived from and/or responsive to ICP's Comment.

    For example, FRB Question 2 inquired "whether Wells Fargo or any of its affiliates has business relationships with any subprime lender (i.e., as a warehouse lender, custodian, or securities underwriter). If so, please identify the relevant business parties...". Question 4 asked the same -- including "identify the relevant business parties" -- about payday lenders, an issue raised in ICP's Comment.

    Wells Fargo's December 3, 2001, response recites FRB Questions 2 and 4 -- including "identify the relevant business parties" -- but these does NOT identify the subprime and payday lenders that Wells Fargo works with ("enables," ICP contends). On these and other grounds, Wells Fargo's purported response is non-responsive.

   On Page 9 of the response, Well's General Counsel states, regarding another subprime lending issue, that "[c]onfidential treatment as been requested for the reasons described in the Confidential Treatment Request dated December 3, 2001." But ICP has not been provided with Wells' letter requesting confidential treatment for material Wells was directed to send to ICP.

    In what was sent to ICP, Wells among other things admits that its subprime unit Island Finance has "[n]o referral program" -- that is, no safeguard that applicants with prime credit histories are not given high interest rate (subprime) loans by Wells Fargo. ICP had previously noted Wells' opening of an Island Finance branch in the South Bronx, and had averred that interest rates of 24% were being charged, without regard to the applicant's credit history. This is not "risk-based pricing" -- this is the gouging of protected classes, in contravention of the fair lending laws.

   ICP was also struck by Wells Fargo's unilateral decision to limit its responses, regarding Wells Fargo Financial, "to the United States operations of WFF's subsidiaries." The FRB's Questions were not limited in this ways; nor were the issues that ICP raised. In late 2000, the FRB asked Chase regarding a subprime lender in Japan, during the contested Chase-Morgan proceeding. ICP has asked that Wells Fargo be required to fully respond to the questions, and to the issues raised.

    In a December 4, 2001, letter, Wells' General Counsel purported to rebut ICP's HMDA analysis by comparing Wells' banks' denial rates for particular groups to those of the aggregate (without addressing the intra-Wells disparities in denial rate for whites and protected classes). ICP maintains that denial rate disparity is a relevant mode of analysis (in fact, the FRB often uses it, as evidenced by FRB Orders). And, even by Wells' own counter-analysis, for example, its bank's denial rate for Latinos for conventional home purchase loans in the Minneapolis market increased from 10% in 1999 to 20% in 2000, while the aggregate's remained the same both years at 28%. In the Cleveland MSA, WFHM's denial rate for African Americans rose from 25% in 1999 to 35% in 2000. In the Houston MSA, WFHM's denial rate for African Americans rose from 23% in 1999 to 26% in 2000, while the aggregates' denial rate was decreasing.

    On antitrust issues, while the DOJ has apparently informed the FRB what it will not require divestitures in the Minneapolis market, ICP reiterates that under the proposal, Wells and U.S. Bancorp would together control more than 67% of deposits in that market -- clearly anticompetitive. The FRB has its own duty to review and act on the antitrust issues, including in light of its own precedents (for example, the previously cited NationsBank - Barnett precedent, and the Early County, Georgia precedent, 82 Federal Reserve Bulletin 953).

Update of December 3, 2001: This week's Wells update also has wider policy implications. On November 29, the U.S. Department of Justice capitulated, and limited the divestitures it will require on this deal to six branches -- three in Rochester MN with $127 million in deposits; two in Huron, SD, with $82 million in deposits; and one in Watertown, SD, with $41 million in deposits. While Wells' application envisioned divesting only one branch in Huron, and did not propose to divest any branches in Watertown, the scandal here is that Wells convinced the DOJ to allow it and U.S. Bancorp to control over 64% of deposits in the Minneapolis-St. Paul market, with no divestitures. Can you say "duopoly"? The new DOJ antitrust "watchdogs" are, in fact, lapdogs. Already under fire, including from nine state attorney generals, for caving in to Microsoft, this DOJ team appears primed to allow duopoly control of any city in the United States.

     It should be noted that the Federal Reserve does not have to follow DOJ's flawed decision, and shouldn't. Wells has yet to respond to the Fed on the CRA and predatory lending issues that have been raised (see below). This will be updated... 

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     Here's a portion of ICP's November 19, 2001 comments:

Dear Secretary Johnson and others in the FRS:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a comment opposing and requesting evidentiary hearings on the applications and notices of Wells Fargo & Co. and its subsidiaries, including its subprime lending subsidiaries Wells Fargo Financial and the Mortgage Resources (f/k/a Directors Acceptance) unit of Wells Fargo Home Mortgage, and Wells Fargo Bank Minnesota, N.A. (collectively, "Wells Fargo") to acquire Texas Financial Bancorporation, Inc., Delaware Financial, Inc., and bank subsidiaries of Marquette Bancshares (collectively, the "Target Banks").

     As set forth below, this proposal is for an anticompetitive merger, which would close branches, by an applicant, Wells Fargo, with worsening disparities in its mortgage lender record, and which engages in questionable subprime lending, including loans with interest rates up to 39%. In Section II, infra, ICP analyzes the anticompetitive and branch closing effects of the proposal. In Section III, ICP analyzes Wells' mortgage lending record in affected markets in 2000, and, in comparing Wells' 2000 data with its 1999, finds that the disparities have grown worse. Also includes are recent accounts of litigation against Wells Fargo for race discrimination and other matters.

     In Section IV, ICP enters into evidence sample loan documents from Wells Fargo Financial, with interest rates up to 39%, analyzes a recent securitization of Wells Fargo's subprime mortgage loans, and documents Wells' connections with the check cashing empire of Dollar Financial Group, and with the payday lender Ace Cash Express. ICP is requesting an evidentiary hearing on these issues. Section V explains why the comment period must also be extended: Wells is withholding even the purchase and merger agreements, as well as antitrust information, and a list of the branches it would close. ICP concludes: on the current record, the FRB could not legitimately approve Wells Fargo's applications.

II. THIS PROPOSED MERGER IS ANTICOMPETITIVE; IT IS ALSO ANTI-CONSUMER, IN LIGHT OF RESULTING BRANCH CLOSINGS

    Wells Fargo and the Target Banks overlap in 20 banking markets, in six states. Wells acknowledges that the proposed merger raises competitive concerns in at least six of these markets (ICP disagrees, and would add the Minneapolis-St. Paul market, see below); but Wells only proposes divestiture in two of these markets. Wells proposes no divestitures in the following consolidating markets:

    Santa Fe, New Mexico -- where Wells Fargo already has more branches than any other institution; where the combined entity would become #1 in deposits, and raise the HHI Index by an anticompetitive 337 points (and by 771 points for branches). The Santa Fe New Mexican of October 6, 2001 reported that "Wells Fargo already has five locations in Santa Fe. Combined with the Bank of Santa Fe's four locations, Wells Fargo will have nine locations in the city with total deposits of $ 274 million, the most of any Santa Fe bank." But in the application, no Santa Fe divestiture is proposed. On this record, under the FRB's duties under the Bank Holding Company Act (the "BHC Act"), this merger could not legitimately be approved.

   Washington County, Texas -- where Wells Fargo already has 13.38% of deposits, and the Target Bank has 9.46%, and the HHI would rise an anticompetitive 347 points, over the antitrust threshold.

    Victoria, Texas -- where Wells Fargo already has 25.27% of deposits, and where the HHI would rise 293 points to a hyper-concentrated 2,962.

   Cedar Rapids, Iowa -- where Wells Fargo already has 26.97% of deposits, and where the HHI would rise 393 points, over the antitrust threshold.

    Wells' antitrust arguments -- those that have not been withheld from ICP -- are premised on including credit unions in the HHI calculations. This argument, which ICP contests, leads to the dubious conclusion that the Minneapolis-St. Paul market, in which Wells already controls 29.60% of deposits, while U.S. Bancorp controls 35.24%, is not overconcentrated. In fact, it's one of the most overconcentrated markets in the United States, a virtual definition of duopoly.

    The Saint Paul Pioneer Press of October 6, 2001 quoted Jon Campbell, president of Wells Fargo in Minnesota, Ohio and Illinois that "Wells Fargo may have to divest some Twin Cities branches, consolidate some overlapping branches and cut some duplicate jobs." Emphasis added. But in the application, no Twin Cities divestiture is proposed. On this record, under the FRB's duties under the BHC Act, this merger could not legitimately be approved.

The Merger Would Close Branches and Harm Consumers

   The Saint Paul Pioneer Press of October 6, 2001 also quoted Wells' Jon Campbell that "Wells Fargo may have to consolidate some branches that overlap with Marquette Bank in the Twin Cities." See also the Twins Fall, Idaho Times-News of October 9, 2001: "An undetermined number of overlapping jobs will be consolidated after the sale closes, said Jim Campbell, chief executive of Wells Fargo Bank Minnesota." However, the application does not discuss branch closings, nor even CRA in any meaningful way.

    The Fort Worth Star Telegram of October 6, 2001, quoted John Gavin, head of Wells Fargo's North Texas operations, that "[b]ranches in north Dallas and Plano will also be valuable," and "short of a couple of branches near existing Wells Fargo offices, 'there's very, very minimal overlap.' One of those markets could be downtown Fort Worth, where Wells Fargo and First State Bank of Denton have offices." But again, the application does not address branch closings, an obviously-foreseeable effect of the proposal.

     The Star Tribune of October 10, 2001 (Marquette employees leery as Wells executives visit branches; Layoff concerns are running high) reported that

Wells Fargo managers visited Marquette Financial bank branches in Minnesota and Texas this week to meet future employees for the first time... Despite assurances from Wells' human resource and regional managers, several Marquette employees said they were leery about the estimated $1 billion deal, which is expected to result in an unknown number of layoffs. Anxiety is running so high that a handful of workers walked away from the meetings Tuesday convinced that mass layoffs were a certainty... Wells spokeswoman Teresa Morrow [said,] "They don't know us yet and don't know about our commitment to team members. Their attitude is: 'Show me.' " During the meetings, Wells officials "were very clear that, 'Yes, there will be the elimination of positions, but our goal is to hang on to people,' " Morrow said... [G]eographic overlap suggests possible choices for branch consolidation and job cuts. Both Wells and Marquette have offices in Brooklyn Park, Brooklyn Center, Coon Rapids, Lakeville, Monticello and New Hope. And both have offices in the IDS Center in downtown Minneapolis.

      Beyond the prospective branch closures -- which should be disclosed -- employees and local economies have ground for concerns, given Wells' lay-off policies. For example, Wells in 2000 "announced that it agreed to buy the rights to service First Union's $ 35.7 billion mortgage portfolio but won't keep the people... The 450 employees at the Raleigh center were told Tuesday that they would be out of work soon." Charlotte Observer, September 6, 2000, emphasis added.

      Wells Fargo should forthwith be required to disclose which branches it would close, and other foreseeable effects on stakeholders, including employees and consumers.

III. WELLS FARGO HOME MORTGAGE DISPROPORTIONATELY DENIES AND EXCLUDES PROTECTED CLASSES, EVEN MORE IN 2000 THAN 1999

   Given Wells Fargo's size as a mortgage lender, the continuing disparities in its lending are of major concern. Hererinbelow, ICP analyzes the 2000 mortgage lending of Wells Fargo Home Mortgage ("WFHM"), first in markets that would be directly affected by this proposed merger, then comparing WFHM's lending in 2000 with its record in 1999, including in some of the affected markets.

    In the Minneapolis Metropolitan Statistical Area ("MSA") in 2000, for conventional home purchase loans, WFHM denied 2.3% of applications from whites, while denying 11.2% of applications from Latinos, and 13.6% of applications from African Americans. That is to say, WFHM denied applications from African Americans 5.91 times more frequently than those of whites, and denied applications from Latinos 4.87 times more frequently than those of whites. While, as is true in most markets, WFHM did more HMDA-reported lending that Wells Fargo's banks, here is the record of Wells Fargo Bank MN ("WFBMN") in the Minneapolis MSA in 2000: WFBMN denied 6.2% of such applications from whites, while denying 22.9% of applications from Latinos, and 13.5% of applications from African Americans. That is to say, WFHM denied applications from African Americans 2.18 times more frequently than those of whites, and denied applications from Latinos 3.69 times more frequently than those of whites. Wells, in this major affected market, is more disparate than the rest of the industry.

    In the Milwaukee, Wisconsin MSA in 2000, for conventional home purchase loans, WFHM denied 4.7% of applications from whites, while denying 11.4% of applications from Latinos, and 24.8% of applications from African Americans. That is to say, WFHM denied applications from African Americans 5.28 times more frequently than those of whites, and denied applications from Latinos 2.43 times more frequently than those of whites. Wells is more disparate than the rest of the industry.

   On lower volume, WFHM in 2000 in the Santa Fe, New Mexico MSA denied Latinos 5.17 times more frequently than whites for refinance loans, and 13.89 times more frequently than whites for conventional home purchase loans. In this MSA, WFHM did not make a home purchase or a refinance loan to any African Americans. On higher volume in the larger Albuquerque MSA in 2000, WFHM denied the conventional home purchase applications of Latinos 2.45 times more frequently than those of whites.

     In the Austin - San Marcos, Texas MSA in 2000, for conventional home purchase loans, WFHM denied 4.0% of applications from whites, while denying 20.5% of applications from Latinos, and 13.0% of applications from African Americans. That is to say, WFHM denied applications from African Americans 3.25 times more frequently than those of whites, and denied applications from Latinos 5.13 times more frequently than those of whites. Wells is more disparate than the rest of the industry.

   The disparities in Wells' mortgage lender have grown worse, from 1999 (and 1998) to 2000. Continuing in Texas:

     In 1999, in the Houston, Texas MSA, WFHM denied the conventional home purchase loan applications of Latinos 3.79 times more frequently than the applications of whites. In 2000 in this MSA, WFHM denied the conventional home purchase loan applications of Latinos 4.36 times more frequently than the applications of whites, and denied the applications of African Americans EIGHT times more frequently than those of whites. Specifically, WFHM in 2000 denied 3.3% of such applications from whites, while denying 14.4% of applications from Latinos, and 26.4% of applications from African Americans.

   In the Dallas MSA, WFHM denied the conventional home purchase loan applications of Latinos 3.20 times more frequently than the applications of whites. This disparity increased in 2000, and, WFHM denied the applications of African Americans 4.45 times more frequently that those of whites, in Dallas.

   In the Seattle, Washington MSA in 1999, WFHM denied 16.4% of African Americans’ applications for conventional home purchase mortgages, while denying only 5.4% of such applications from whites. In this MSA, WFHM’s denial rate disparity between African Americans and whites in 1999 was 3.04. This disparity grew worse in 2000 -- rising to 3.64.

    The above are communities in which Wells Fargo has a Community Reinvestment Act ("CRA") duty to lend fairly. Of course, the fair lending laws (i.e., the Fair Housing Act, 42 U.S.C. 3601-3619, and the Equal Credit Opportunity Act, 15 U.S.C. 1691-1691f) apply to Wells Fargo’s extensive nationwide lending. Wells Fargo’s record is disparate, and getting worse. In the Chicago MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 5.85 times more frequently than the applications of whites – which was higher than WFHM’s denial rate disparity in this MSA in 1998, 3.71. In 2000 in the Chicago MSA, WFHM denied the conventional home purchase loan applications of African Americans 8.57 times more frequently than the applications of whites -- Wells' disparities are growing worse each year.

     In the Cleveland, Ohio MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 4.98 times more frequently than the applications of whites. In 2000 in the Cleveland MSA, WFHM denied the conventional home purchase loan applications of African Americans 5.57 times more frequently than the applications of whites -- Wells' disparities are growing worse each year.

    In the Jackson, Mississippi MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 4.27 times more frequently than the applications of whites. In 2000 in the Jackson MSA, WFHM denied the conventional home purchase loan applications of African Americans 7.97 times more frequently than the applications of whites -- Wells' disparities are growing worse each year.

    In the Washington, DC MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 3.61 times more frequently than the applications of whites. In 2000 in the Washington D.C. MSA, WFHM denied the conventional home purchase loan applications of African Americans 5.69 times more frequently than the applications of whites -- Wells' disparities are growing worse each year. Where will it end? ICP contends that Wells Fargo and its subsidiaries are presumptively violating the fair lending laws, and ICP calls on the FRB to make the required filing with the U.S. Department of Justice. On this record, this proposed merger should be denied.

    Beyond the lending disparities identified above, other race discrimination issues have arisen regarding Wells Fargo. See, e.g., The Oregonian of May 16, 2001 ("$50,000 LAWSUIT ON RACE HITS BANK"), reporting that

A Portland man has sued Wells Fargo Bank for allegedly discriminating against him by refusing to cash a check because he is black. The $50,000 suit, filed last week in Multnomah County Circuit Court, contends that a bank employee engaged in racial profiling when the teller refused to cash a $3,000 check for Daryl Garner, a Northeast Portland landlord and college student.

According to the suit, Garner went to the Lloyd Center branch of Wells Fargo on Oct. 26, 2000, and presented a valid check drawn on a Wells Fargo account. "A bank teller refused to cash the check, even though the funds were available, without contacting the account holder," the suit stated. "The agent did not act pursuant to any established policy but refused to cash the check because Garner is an African American"...Tom Unger, a spokesman for Wells Fargo in Portland, called the suit without merit... "We did cash the check for this person, Daryl, who is not a Wells Fargo customer, about 90 minutes after the request was first made," Unger said...

    See also, California Employment Law Letter of January 8, 2001, "Bank manager may sue for failure to accommodate," regarding Wells Fargo's employment practices.

      The New York Times of April 29, 2001, reported:

The lawsuit was filed on behalf of as many as 300,000 of the Mexican laborers or their heirs. The laborers, known as braceros, began coming to the United States in 1942 to be railroad workers or farmhands. From 1942 until possibly as late as 1949, under agreements between the United States and Mexico, 10 percent of the braceros' wages were deducted and held in savings accounts. The money was to be transmitted from American banks to Mexican banks and given to the braceros when they returned home.

Experts on the braceros said it appeared that many of the laborers did not receive their savings. Some braceros said they were never told they were entitled to the money, some said they were told there were no accounts in their names and some said they were promised money but never received it.... [A] defendant in the lawsuit is Wells Fargo Bank, based in San Francisco, where some deductions were deposited before being transferred to Mexico. A Wells Fargo spokesman, Larry Haeg, said the only documents the bank had been able to find were from 1944 and 1945 and indicated only that Wells Fargo was one of the depositories. "We have no information that this matter wasn't handled satisfactorily in the normal course of business," Mr. Haeg said.

    The FRB needs to inquire into and get to the bottom of this. The legal publication The Recorder, July 18, 2001, notes "parallels between Holocaust and Japanese internment reparations suits that have demanded governments and companies pay for alleged crimes committed more than a half century ago. The United States government was very supportive of the claims of the Holocaust plaintiffs... Now the shoe is on the other foot, It will be interesting to see if they are prepared to do for the braceros what they urged the German government and German and U.S. corporations do to in Holocaust cases." The FRB must inquire into these issues, and the subprime lending issues below, including at the evidentiary hearing which ICP is timely requesting. On the current recent, Wells' application should not be approved.

IV. WELLS FARGO'S STANDARDLESS SUBPRIME LENDING HARMS COMMUNITIES: LOANS AT RATES UP TO 39%, PREPAYMENT PENALTIES, ETC.

   Wells is a large and ever-growing subprime lender. Below, ICP enters into evidence and analyzes a recent securitization of Wells Fargo subprime mortgage loans. Annexed hereto, to be entered into evidenced, are loan documents from sample Wells Fargo Financial loans, with interest rates as high at 39.37%. For example:

To finance $736.64 at Wells Fargo Financial in 2000, a customer was charged $253.36 in finance charges, for an Annual Percentage Rate ("APR") of 39.79%. This loan includes Life and Accident & Health insurance.

To finance $2,983.06 at Wells Fargo Financial in 2000, a customer was charged $2,536.94 in finance charges, for an APR of 34.30%. This loan includes Life, Accident & Health and Involuntary Unemployment insurance.

To finance $13,799.67 at "Norwest" Financial in 2000, a customer was charged $5,280.33 in finance charges, for an APR of 22.42%. This loan includes Life Insurance, and separate payouts to Dial Bank and Norwest Financial -- that is to say, it is a refinance.

To finance $5,731.03 at Norwest Financial in 1999, a customer was charged $3,088.97 in finance charges, for an APR of 30.54%. This loan includes Life and Accident & Health insurance.

    Also annexed hereto is a sample Wells Fargo Financial (mandatory) Arbitration Agreement, from 2000.

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     Origination News of January 2001 (Wells Boost Subprime) reported:

Wells Fargo Home Mortgage here expects to make a big push into subprime wholesaling in the new year. "The demand is definitely out there for subprime," said WFHM executive president Michael Lepore. "We hope to grow our subprime volume from current levels"...In 2000 WFHM produced between $600 million and $650 million in subprime loans. In a recent interview with Origination News, Mr. Lepore was cautious about making a subprime estimate for 2001 but he said the firm hopes to improve its subprime business by as much as 50%. [He] noted that the company currently has 85 account executives who ply their trade in subprime compared to 65 account executives in early 2000. "By July of next year we hope to 110 account executives," said Mr. Lepore. "Once we reach that number I think we'll maintain it at that level"... Meanwhile, Wells has rechristened its subprime division Mortgage Resources. (It was formerly known as Directors Acceptance.) Currently, it has about 2000 loan brokers that submit loans to the company.

     By Mr. Lepore's statements, Wells is doubling its subprime lending. The FRB should inquire -- particularly in light of the analysis below, of a recent securitization -- into Wells current subprime volumes, and safeguards in place. The National Mortgage News of February 19, 2001 ("Subprime Lending Volume Leaders 4Q/00") reported that in only the fourth quarter of 2000, Wells originated $2,996,000,000 in subprime loans: nearly $3 billion dollars. This figure, which even for Wells seems high, does not jibe with Mr. Lepore's statements, quoted above. In terms of particular channels, Origination News / B&C News of November 2001 lists Wells Fargo Home Mortgage as the 14th fastest-growing subprime "wholesaler" in the United States, with a second quarter 2001 volume of $160 million, up 63% from the second quarter of 2000. See also, National Mortgage News of April 9, 2001, regarding Wells' top-20 "correspondent" subprime lending.

    There are consumer compliance problems with Wells' subprime operations, both mortgage and non-mortgage lending. See, e.g., Hinson, et al. v. Norwest Financial South Carolina Inc., No. 99-1087 (4th Cir. 2/6/01) -- "Christopher and Susan Hinson filed a class action in state court against Norwest Financial South Carolina Inc., alleging Norwest failed to inform them of their right to be represented by counsel at their closing. They also alleged Norwest misrepresented the interest rate, in violation of the TILA... The Hinsons subsequently settled their claims with Norwest." Consumer Financial Services Law Report, April 02, 2001.

     Wells' involvement in the subprime industry goes beyond its own lending, and encompasses its activities as master service, custodian and trustee (that latter two, mostly through Wells Fargo Bank Minneapolis). See, e.g., DLJ ABS Tr Mtg P-T Ctfs, Series 2000-3; DELTA FUNDING CORP HM EQ LN HEL SE 01 2 (Wells Fargo Bank Minnesota, National Association, custodian); the March 27, 2001 prospectus of the subprime lender NOVASTAR MORTGAGE FUNDING CORP ("Trustee: Wells Fargo Bank Minnesota, N.A., a national banking association. Wells Fargo Bank will act as the initial paying agent. Certificate Administrator and Backup Servicer: Wells Fargo Bank Minnesota, N.A., a national banking association. In its capacity as certificate administrator, Wells Fargo Bank will act as the initial certificate registrar in addition to performing other administrative functions on behalf of the trustee... The seller, NovaStar Mortgage, Inc... originates subprime residential mortgage loans through a network of unaffiliated wholesale loan brokers. The seller utilizes a network of approximately 2,500 wholesale loan brokers in 48 different states"); and the subprime lender AAMES FINANCIAL CORP's most recent 10-k, referencing its rights agreement with Wells Fargo Bank (note that AAMES FINANCIAL CORP is being de-listed from the NYSE, as its stock is below $1).

   Wells is also active in the payday lending field. For example, ACE Cash Express -- recently sued in Denver, Colorado for its high-rate payday lending -- references a "Credit Agreement dated as of July 31, 1998, but effective as of December 16, 1998 [with] Wells Fargo Bank (Texas), National Association" and also an "Amended and Restated Credit Agreement dated November 9, 2000 [with] Wells Fargo Bank Texas, National Association." The San Francisco Examiner of August 10, 2000, reported that "Wells Fargo offers its own payday advance...".

     The check cashing empire Dollar Financial Group, which operates in 17 states under the names Cash A Cheque, Cash Centres, Fastcash, Money Mart(R), The Money Shop and Loan Mart(R), discloses in its most recent 10-K that its "overdraft facility is secured by an $8.0 million Letter of Credit issued by Wells Fargo Bank under the revolving credit facility." The FRB should inquire into Wells' subprime lending and related activities, including support to check cashers and payday lenders. ICP is timely requesting an evidentiary hearing on Wells Fargo's application (and record), and contends that, on this record, the FRB could not legitimately approve Wells Fargo's applications.

    Wells is also active in lobbying against state and local efforts to impose consumer protection safeguards on subprime lending. The Cleveland Plain Dealer of October 18, 2001, reporting on efforts to prohibit Ohio cities from passing anti-predatory lending ordinances, notes Ohio House Bill 386: "The bill was written with the help of the Ohio Consumer Finance Association, which represents so-called subprime lenders such as Household International, Citifinancial and Wells Fargo Corp.." At the Mortgage Bankers of America conference held in Toronto this Fall, Stephen Morrison, the senior vice president and senior mortgage counsel at Wells Fargo Home Mortgage, gave a speech stating that "the industry response to the consumer groups has been lacking as of late. Legislatures are daring the mortgage industry to show data to counter the stories the advocates tell. So far the industry has not made a cohesive response." Origination News, November 2001. But Wells does not even mention, much less address, its questionable subprime lending in its Application. In light of the information and evidence in and annexed to this Comment, the FRB must make a detailed inquiry into these matters, including at the evidentiary hearing that ICP is requesting.

    Since Wells Fargo Financial does not file HMDA data, and since Wells' other subprime unit mix their HMDA in with that of Wells Fargo Home Mortgage, it is worth considering the interest rates, FICO scores and other identifying information from a recent securitization which consists, over 80%, of Wells Fargo (subprime) loans. Consider, for example, the securitization announced earlier this month by Deutsche Banc Alex Brown / ACE Securities: "HOME EQUITY LOAN TRUST, SERIES 2001-HE1." The information below (into which, for the reasons set forth below, the FRB should inquire) is all from a Form 8-K / Term Sheet dated November 9, 2001, and filed with the SEC on November 13, 2001.

      This pool consists of over 6,000 loans, over 80% of them originated by Wells Fargo, the balance by the (other) subprime lenders New Century and Homestar. "Loans with prepay penalties: 90.49%." And here's the table of interest rates on the loans:

[Table omitted]

     These are predominantly subprime loans (and predominantly -- over 80% -- Wells Fargo loans), with interest rates up to 14.5%, with significant numbers of the loans with rates over 10%, 90% of the loans with prepayment penalties.

     Of the adjustable-rate mortgages (ARMs), the rates can go over 20%:

[Table omitted]

   While the maximum rate ranges high, the minimum locks most of these loans forever out from prime (or even near-prime) prices:

[Table omitted]

    Here are the underlying FICO scores:

[Table omitted]

     That, along with the interest rates (the two should be compared, in detail, by the FRB), confirms that these are predominantly subprime loans. Note that Thomson's publication "Broker," of February 2001, quoted Jim Buchanan, "national sales manager for wholesale subprime for Wells Fargo Mortgage," that "Wells Fargo has programs that have a 50% debt-to-income ratio and a 560 FICO score... [M]ost its products have prepayment penalty." And see supra (90% of loans in this securitization have prepayment penalties).

    Here's where the loans in this securitization come from:

[Table omitted]

     Again, these are predominantly -- over 80% -- Wells Fargo loans, with significant numbers in states where Wells has a CRA duty (and in states that would be affected by this proposed Wells acquisition).

V. PROCEDURAL AND FOIA ISSUES; CONCLUSION

   On November 5, 2001, ICP filed a Freedom of Information Act ("FOIA") request for "a complete copy of the applications, all records reflecting any FRS personnel’s communications with the above-captioned companies or their affiliates regarding the proposal... and any other records in the FRS’ possession related to the proposal." ICP's requested notes that it was "being made two weeks prior to November 19, 2001; if ICP does not receive the portions of the application which are not exempt under FOIA at least three business days prior to November 19, 2001, ICP hereby requests an extension of the comment period until three days after such receipt."

     The FRBSF sent ICP portions of the applications, but many material exhibits, including even the purchase and merger agreements, have been withheld. ICP continues to await the FRB's FOIA response (ICP believes it more productive to wait for this response before submitting a FOIA appeal), and asks for an extension of the comment period.

     In sum, this is an anticompetitive, service-reducing merger proposal, by a financial holding company with a disparate mortgage lending record and that is engaged in questionable subprime lending, including loans at 39% interest rates. ICP is timely requesting an evidentiary hearing on Wells Fargo's application (and record), and contends that, on this record, the FRB could not legitimately approve Wells Fargo's applications.

Respectfully submitted,

Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
1919 Washington Avenue
Bronx, New York 10457
Tel: 718-716-3540
Fax: 718-716-3161

     NOTE:  For or with more information, contact us.  This will be updated; stay tuned...

* * *

     Here are some of ICP's earlier (2001) reports on Wells Fargo:

Update of October 29, 2001: At the annual conference of the Mortgage Bankers of America, held earlier this month in Toronto, Wells Fargo's Stephen Morrison purported to summarize activists' thinking: "lending itself must be restricted." Mr. Morrison urged the industry to do more -- what else? -- lobbying. Mr. Morrison's thinking was set forth in more detail in the September 2000 edition of Mortgage Banking magazine, where he wrote that "industry employees should be prepared to talk to their state legislators about their concerns. Consumer groups have redirected their efforts to the state level to try to get legislation passed because lenders and brokers have been effective at lobbying against such laws in Washington, D.C.. The industry should adopt the term 'unacceptable lending practices,' because it is less inflammatory than 'predatory lending' and it promotes a calmer, more reasoned approach by lawmakers to the problems." This will be updated (and acted on)...

Update of May 7, 2001: Wells Fargo has managed to obtain last-minute amendments to Denver's anti-predatory lending regime. The city of Denver was preparing a request for proposals for the city's banking business which would have disqualified banks engaged in predatory lending. As the American Banker delicately put it, " Many banks, including Wells Fargo & Co., holder of the city's current banking contract, have subsidiaries that make subprime loans to borrowers with spotty credit histories." After lobbying by Wells Fargo and others, Denver modified it to only disqualify banks making high-rate loans to applicants who are eligible for prime credit. Who exactly is going to police this -- was left unresolved.

Update of March 12, 2001:  On March 8, Wells Fargo announced an agreement to acquire auto and home insurance agency Acordia Inc., the fifth-largest U.S. insurance agency with 112 offices in 29 states, and $400 million in sales...

Update of January 29, 2001-- At Wells Fargo, the complete corporate take-over by Norwest is confirmed. The company has announced that ex-WFC chairman Paul Hazen is leaving after the April 24, 2001 board meeting.. The ex-Norwest chieftain, Richard Kovacevich, "will add the title to his position." Hazen's only 59; he's moving on to venture capital firm with 10 employees, started last year by leveraged buy-out firm buyout shop Kohlberg Kravis Roberts & Co....

    As documented in the portions of ICP's comments reproduced below, Wells in 1999 disproportionately denied applications from people of color for normal interest rate loans, while targeting these same communities with its high interest rate lenders.  The same was true in 1998 -- further down on this page is  ICP's analysis of Wells' 1998 lending, in connection with Wells' expansion into Alaska.   Click here for ICP's current Wells Watch. Here are our 2000 reports:

Update of October 16, 2000: The Federal Reserve Board, in a long but rubber-stamp toned order dated October 10, approved Wells Fargo's application to acquire First Security. The Fed included a paragraph noting "disparities" in Wells Fargo's lending, but dismissed these disparities in light of the "limitations" of Home Mortgage Disclosure Act data. While Wells continues not only its own questionable subprime lending (on which the Fed refused to rule, stating that it referred the comments to the FTC, HUD and Justice Department -- as if the Fed didn't have jurisdiction over Wells Fargo Financial, and Wells Fargo Mortgage (and Equity) Resources), but also acts as trustee for such multiply-sued subprimers as Delta Funding and First Alliance, the Fed claimed that Wells has no responsibility for this collaborations with lenders, like Delta, which have settled race discrimination charges. This is the nut that must (and can and will) be cracked. The Fed emboldened Wells, and other banks, by ruling that the "pledges" they make, and submit to the Fed on mega-mergers, are "outside CRA," and not enforceable by the Fed. If the Fed views these pledges as outside CRA, why didn't it advise Senator Gramm to that effect, before passage of a bill that imposes onerous reporting duties on community development groups, as a purported amendment to the CRA statute? Wells does not and will not rest, from its acquisitions binge, and neither will the growing movement of groups concerned with Wells Fargo's practices... Updates to follow. Until then, for or with more information, contact us.

Update of October 9, 2000: The Federal Reserve Board has finally put Wells Fargo's application to acquire First Security on its agenda, for October 10. We will be analyzing (and following up) on the Fed's action; watch this space. Also last week, the Charlotte Observer reported a rumor that Wells Fargo is in talks to buy First Union. This led to a rare press release denial by First Union on October 6. Wells Fargo said nothing. Before we leave the rumor mill, ICP's sources suggest a different Wells - North Carolina connection, with a bank holding company whose name begins with "W." Need another hint? It's one of the few banks whose name ends in "via" (like the classical guitarist, Segovia). 'Nuf said.

Update of October 2, 2000: The Fed has still not approved Wells - First Security, nor put it on its agenda. Wells CEO continues to say he anticipates "no delays." There was no movement on the Wells - Charter One rumor reported (as such) last week in this space; these are just that: rumors. Wells CEO expressed an interest in buying more "non-banking" businesses. So: watch out...

Update of September 25, 2000: We'd predicted that the Fed would approve Wells-First Security nearly immediately after the Department of Justice signed off. But it hasn't happened: not immediately, at least. On September 20, ICP received from Wells a copy of its September 8 letter to the Fed, explaining in classic boilerplate fashion its various pretences of fair lending safeguards in place for its high interest rate lending. The Fed has thrown the softball questions, and Wells has hit them back.

      In an ear-to-the-street item exclusive (we think) to ICP, a heretofore credible source indicates that Wells Fargo has conducting due diligence on Charter One. This we have heard, not having any financial interest in. From a community perspective, opposition to Wells Fargo continues to grow, and would surely rear its head on any Wells application to acquire Charter One....

Update of September 15, 2000:  On September 13, the Department of Justice signed off on Wells Fargo's proposal to acquire First Security, as long as Wells sells 37 branches, and $1.4 billion in assets. The Fed rubber stamp is next: surprisingly, as of Thursday evening (the customary 48 business-day hours before the Fed's next voting meeting), Wells- First Security was not listed on the Board's September 18 agenda (only an application by a Turkish bank to open an office in New York). The other shoe (Fed approval, following DOJ press release) is poised to drop -- but when? Soon.

Update of September 11, 2000: While Wells Fargo's application to acquire First Security continues to pend at the Federal Reserve Board, Wells announced last week that it's buying the servicing rights to a $35.7 billion portion of the First Union Mortgage Corporation servicing portfolio. Combine this with the $80 billion in servicing Wells is buying from G.E. Capital Mortgage Services, and with the $16 billion in servicing Wells is seeking to acquire along with First Security, and it's clear that an antitrust issue is arisen, one not addressed in Wells' initial First Security application. With these deals, Wells would control 9.3% of the $4.88 trillion U.S. mortgage servicing market. Hello, Federal Reserve -- are you paying attention? Meanwhile, Wells is throwing its weight around, pressuring community groups who commented on its First Security application to recant (one group has already distanced itself from previous comments opposing Wells' application). Same question: Federal Reserve -- are you paying attention? Developing...

Update of September 5, 2000: The American Banker newspaper of September 1 noted that Wells had missed its "end of August" deadline for finalizing and announcing its First Security divestiture plan. The Banker speculates that the slow-down is attributable to the "patchwork of multiple operating systems" in place at First Security's Nevada branches, and Wells Fargo's Idaho branches. Another possible explanation, not mentioned by the Banker, is that the Department of Justice is agreeing with protesters that Wells' divestiture proposal, which would leave it with high market shares in more than a half-dozen markets, was insufficient… Developing…

Update of August 28, 2000: In a letter to the Federal Reserve dated August 18, Wells general counsel Stanley Stroup among other things acknowledges HUD’s “termination of the origination authority of [Wells Fargo Home Mortgage’s] Orland Park, Illinois office... based on the Orland Park office’s default and claim rate.” Wells’ solution? Wells “as of March 31, 2000 closed the office.” Somehow we don’t think that resolves the issue of Wells’ involvement in questionable subprime lending, the closing of one office...

    On antitrust, Mr. Stroup writes that ICP “points out that certain portions of the divestiture proposal are redacted. Wells Fargo requested that the identity of the particular branches including in the divestiture proposal, and in some cases the size of the proposed divestiture, be accorded confidential treatment.” On August 25, ICP filed a Freedom of Information Act appeal with the Federal Reserve for this information. The next day, ICP received by regular mail the Fed’s August 23 letter, denying ICP’s August 7 request for extension of the comment period. Reply comments, however, are being prepared for submission...

Update of August 21, 2000:   In our last report, above, we stated that groups in six states had challenged Wells-First Security. The number has grown to eight, with the addition of Nevada (see Las Vegas Sun of August 15, 2000) and of New Mexico. The Albuquerque Journal of August 15 quoted Wells spokeswoman Pamela Chavez that Wells is not opposed to an extension of the comment period. Meanwhile, internal Fed documents provided to ICP under the Freedom of Information Act show the Fed aiming to rule on the merger by August 27. ICP has appealed the Fed’s withholding and redaction of much of the information in Wells’ application. Wells COO Lester Biller told Bloomberg last week the Wells now wants to acquire banks in Kansas, Missouri and Oklahoma. In Los Angeles during the Democratic Party’s convention, United Steelworkers Local 338 held a protest of Wells Fargo, with their own (modified) stagecoach. Wells, meanwhile, hosted a reception for Federal and state lawmakers. Can Wells’ campaign contributions and batten-down-the-hatches arrogance allow it to continue with its standardless subprime lending? This remains to be seen...

    Until next time, for or with more information, contact us.

* * *

PETITION TO DENY AND HEARING REQUEST BY INNER CITY PRESS / COMMUNITY ON THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER IN OPPOSITION TO THE APPLICATIONS OF WELLS FARGO CORPORATION TO ACQUIRE FIRST SECURITY CORPORATION

AUGUST 7, 2000

I. PRELIMINARY STATEMENT

      On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, “ICP”), this is a timely comment opposing and requesting hearings on the applications and notices of Wells Fargo Corporation and its subsidiaries, including its subprime lending subsidiaries (collectively, “Wells Fargo”) to acquire First Security Corporation and its subsidiaries, including over 300 bank branches (“FS”).

      This proposed merger would harm competition and consumers. Wells and FS have overlapping branch networks in 31 local banking markets. Even as calculated by the Applicants, the proposed combination would result in increased concentration levels in fourteen markets that raise competitive concerns, under the Department of Justice’s and Federal Reserve’s merger guidelines. See Applicant’s Memorandum on Competitive Considerations (the “Mem.”), at 3. However, the Applicants are proposing divestitures in only eight of these fourteen markets.  Id. At 4. Even in these eight markets, the divestiture proposals are woefully inadequate. See Section III of this Comment, infra. Wells even admits that “in Las Vegas... the post-divestiture HHI [would] exceed the safe harbor thresholds.” Id. at 5.   Wells has requested confidential treatment for its divestiture proposals in four other markets; this information, and a list of Wells’ planned and/or proposed branch closings must be released to the public, and, the comment period must be extended.

    Wells Fargo has a history of service reductions, branch closings, and diminished focus on the local communities in which it buys banks. ICP is increasingly concerned by Wells Fargo’s extensive involvement in subprime, and, ICP contends, predatory lending. Wells Fargo, beyond its insured depository institutions, owns at least four large subprime lending subsidiaries: Wells Fargo Financial (f/k/a/ Norwest Financial), Island Finance, the Directors Acceptance unit of Wells Fargo Home Mortgage (f/k/a/ Norwest Mortgage), and Norwest Home Improvement Inc. (“NHI”).

    Furthermore, Norwest Bank Minnesota, N.A., partners with many subprime lenders, including the recently bankrupted First Alliance Mortgage (the subject of the New York Times expose of March 15, 2000, incorporated herein by reference) and Delta Funding (which was sued for racial discrimination by the New York State Attorney General in 1999).

    The Federal Reserve Board’s Chairman in March of this year expressed the Board’s worries about predatory lending, stating: “Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure. The Federal Reserve is working on several fronts to address these issues...”. Remarks of Chairman Alan Greenspan Before the Annual Conference of the National Community Reinvestment Coalition, March 22, 2000. See also, Reuters newswire of March 22, 2000: “Greenspan Says Fed to Target Abusive Lending;” American Banker of March 23, 2000, “Greenspan Wades In On Predatory Lending, Joining Other Regulators.”

     Since then, in scheduling and attending Fed hearings on the Home Ownership and Equity Protection Act on 1994, Governor Gramlich has reiterated the Fed’s concern with predatory lending, while claiming that there is little that the Fed can do, by itself, about the problem. See, e.g., Fed Says Can't Curb Subprime Lending Abuses Alone, Reuters, August 4, 2000: “‘Our authority in the overall scheme of things is a bit limited,’ Gramlich said before a panel discussion on predatory subprime lending. ‘We certainly can't do it all.’”

    Given the Federal Reserve Board’s recently expressed concern about predatory lending, and its claims that there is little the agency can do about the problem, Section IV of this Comment includes a detailed examination of Wells Fargo’s involvement in subprime and predatory lending. First, however, Section II considers the 1999 lending record of Wells Fargo’s largest mortgage lending unit, Wells Fargo Home Mortgage (“WFHM), and Section III comments on the undisclosed and unmitigated antitrust issues raised by this proposal.

II. WELLS FARGO’S DISPARATE MORTGAGE LENDING IN 1999

     In 1999, in the Las Vegas, Nevada Metropolitan Statistical Area (“MSA”), Wells Fargo Home Mortgage (“WFHM”) denied 28.7% of African Americans’ applications for conventional home purchase mortgages, while denying only 7.2% of such applications from whites. In the Las Vegas MSA, directly affected by this proposed merger, WFHM’s denial rate disparity between African Americans and whites is 3.99 -- higher than WFHM’s disparity between the applications of low income people (those with incomes below 50% of MSA media) and of upper income people (with incomes over 120% of MSA median), 1.90. Wells Fargo’s racial disparities in lending are not explained by income differences. For the reasons set forth below, ICP contends that Wells Fargo and its subsidiaries are presumptively violating the fair lending laws, and ICP calls on the FRB to make the required filing with the U.S. Department of Justice. On the record set forth infra, this proposed merger should be denied.

     In the Seattle, Washington MSA in 1999, WFHM denied 16.4% of African Americans’ applications for conventional home purchase mortgages, while denying only 5.4% of such applications from whites. In this MSA, WFHM’s denial rate disparity between African Americans and whites is 3.04 –- higher than WFHM’s disparity between the applications of low income applicants and of upper income applicants, 1.02. Again, Wells Fargo’s racial disparities in lending are not explained by income differences.

     Wells Fargo’s disparities are not confined to African Americans. In the Dallas, Texas MSA in 1999, WFHM denied the conventional home purchase loan applications of Latinos 3.20 times more frequently than the applications of whites. In the Houston, Texas MSA, WFHM’s denial rate disparity between Latino and white applications was even higher: 3.79. These are all communities in which Wells Fargo has a Community Reinvestment Act (“CRA”) duty to lend fairly.

     Of course, the fair lending laws (i.e., the Fair Housing Act, 42 U.S.C. Sec. 3601-3619, and the Equal Credit Opportunity Act, 15 U.S.C. Sec. 1691-1691f) apply to Wells Fargo’s extensive nationwide lending. Wells Fargo’s record is disparate, and getting worse. In the Philadelphia MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 5.92 times more frequently than the applications of whites – higher even that WFHM’s denial rate disparity in this MSA in 1998, 3.65.

    In the Chicago MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 5.85 times more frequently than the applications of whites – higher even that WFHM’s denial rate disparity in this MSA in 1998, 3.71.

    In the Cleveland, Ohio MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 4.98 times more frequently than the applications of whites.

   In the Jackson, Mississippi MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 4.27 times more frequently than the applications of whites.

    In the Washington, DC MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 3.61 times more frequently than the applications of whites.

    And in the Bridgeport, Connecticut MSA in 1999, WFHM denied the conventional home purchase loan applications of African Americans 6.09 times more frequently than the applications of whites. ICP contends that Wells Fargo and its subsidiaries are presumptively violating the fair lending laws, and ICP calls on the FRB to make the required filing with the U.S. Department of Justice. On this record, this proposed merger should be denied.

III. THIS PROPOSED MERGER IS ANTICOMPETITIVE

      Wells Fargo and First Security have overlapping branch networks in 31 local banking markets. Even as calculated by the Applicants, the proposed combination would result in increased concentration levels in fourteen markets that raise competitive concerns, under the Department of Justice’s and FRB’s merger guidelines.  Mem. at 3. However, the Applicants are proposing divestitures in only eight of these fourteen markets. Id. At 4. Even in these eight markets, the divestiture proposals are woefully inadequate. Wells even admits that “in Las Vegas… the post-divestiture HHI [would] exceed the safe harbor thresholds.” Id. at 5.

    The markets which would become overconcentrated, but in which Wells proposes no divestitures, including Las Cruces, New Mexico; Salt Lake City, Utah; Truckee-Tahoe, California-Nevada, and Twin Falls, Bonner County, and Pocatello, Idaho. These markets would be objectively overconcentrated even if the FRB grants Wells’ unsupported request that the Board weigh the deposits of “commercially active thrifts” at 100 percent. Id. at 5. Wells is apparently counting on the FRB becoming so lax as to antitrust enforcement that it ignores even its own guidelines and past precedents. But nothing in recent legislation, the Gramm-Leach-Bliley Act of 1999 included, relieved the FRB of its duty to “not approve” mergers that would be anticompetitive in local banking markets, under Section 3 of the Bank Holding Company Act. This merger, including Wells’ divestiture proposals, could not legitimately be approved.

    ICP requested a copy of the full application in mid-July, under the Freedom of Information Act (“FOIA”). The Federal Reserve Bank of San Francisco (the “FRBSF”) has provided ICP with a portion of the application, from which the details of Wells’ divestiture proposal are redacted. The Board has yet to respond to ICP’s FOIA request, which challenges these redactions. The FRB’s comment period must be extended beyond the August 14, 2000 expiration, so that the public can review Wells’ actual proposal.

     The Antitrust Memorandum, as provided to ICP, has all information about Wells’ divestiture proposal in Carson City, Blaine, Park City and South Lake Tahoe redacted. The asserted bases for these redactions are unclear. Wells has apparently not requested confidential treatment for its divestiture proposal in Las Vegas, for example: seven branches, with $392,514 in deposits, leaving an HHI of 2,142, increase of 222 (breaching the DOJ’s and FRB’s Merger Guidelines). Even in this Las Vegas market, Wells states that “[t]he parties propose to retain certain private banking deposits and deposits relating to a bankruptcy trustee’s account… Because the parties are unable to ascertain the amount of such retained deposits at June 30, 1999, they have approximated the market HHIs by excluding from the calculations an entire branch from the divestiture assumptions—” this presentation is then cut off by a redaction. Wells’ inexactitude should not be accepted, given the competitive considerations raised by this proposal. The withheld (and/or not submitted) information must be provided (including Wells’ planned or project branch closings, as both an antitrust and “convenience and needs” issue), and, the comment period must be extended.

    Even by Wells’ calculations, the post-merger HHI in the Salt Lake City market would rise 349 points, to 2266 (an anticompetitive market share of over 40%). Mem. at 29. It should also be noted that the collapse of the Zions – First Security proposed merger arguably leaves Zions as a weakened competitor, further militating for divestitures in this market.

    In the Las Cruces, NM market, the post-merger HHI would rise 324 points, to 1914. It is the size of the HHI rise – well over the 200 point threshold – that most militates for divestitures in this market.

     The HHI in the Truckee-Tahoe market would rise to a hyper-concentrated 2485. In Twin Falls, it would rise to 2471. In Pocatello, Idaho, it would rise 348 points, to 2548. When the FRB approved NationsBank – Barnett, the Order included a statement that in the future, the FRB would be looking more closely at merger proposals that raised HHI levels in numerous adjacent markets. This is precisely the case here. If the FRB meant what it said, this proposal cannot be approved.

IV. WELLS’S INVOLVEMENT IN QUESTIONABLE SUBPRIME LENDING

      While Wells Fargo disproporationately denies people of color access to conventional home purchase loans through Wells Fargo Home Mortgage (see supra), Wells Fargo’s high interest rate, subprime lending affiliate, Norwest Home Improvement Inc. (“NHI”), targets people of color.

      In the Birmingham, Alabama MSA in 1999, this Wells Fargo subprime lender made 29 home improvement loans to African Americans, and only slightly more such loans (37) to whites. This is to be compared with the aggregate industry’s home improvement lending in this MSA in 1998: 466 loans to African Americans, and 1733 loans to whites. NHI, a high interest rate subsidiary of Wells Fargo, targets minorities for high interest rate credit.

     In the Memphis, TN MSA in 1999, NHI made 26 home improvement loans to African Americans, and 29 to whites. In the New Orleans, LA MSA in 1999, NHI made 11 home improvement loans to African Americans, and 21 such loans to whites. In the Atlanta, GA MSA in 1999, NHI made 59 home improvement loans to African Americans, and 139 such loans to whites. NHI, a high interest rate subsidiary of Wells Fargo, targets minorities for high interest rate credit. ICP contends that Wells Fargo and its subsidiaries are presumptively violating the fair lending laws, and ICP calls on the FRB to make the required filing with the U.S. Department of Justice. On this record, this proposed merger should be denied.

* * *

   When ICP first raised to the FRB Norwest Home Improvement Inc.’s blatant targeting of people of color with high interest rate loan products, Wells responded that it had “phased out” NHI on May 1, 2000. That does not affect the significance and probative value of NHI’s 1999 lending patterns. Wells continues subprime lending, through Directors Acceptance and Wells Fargo Financial (neither of which has HMDA data available); there is no reason to believe that the targeting of these two Wells subprime units is different than that of NHI.

    Earlier, ICP raised the disparities at Norwest Mortgage to the Federal Reserve Board in 1996; Norwest responded that it “ha[d] hired new community development loan officers in a number of MSAs with predominantly minority populations to focus on underserved communities and anticipate[d] employing a total of 375 such officers by 1997.” See 82 Fed. Res. Bull. 683 (July, 1996); see also Norwest’s underlying April, 1996 letter to the FRS’ James Lyons).

     Despite this commitment, as of Norwest’s (now Wells Fargo’s) General Counsel’s letter to the FRS dated September 30, 1998, Norwest Mortgage, well after the “1997” deadline for having in place “375 such officers,” had only 152 such officers (“CDSRs”) in place. This 1998 letter (addressed to the FRBSF’s Michael E. Johnson) also evaded the questions that had been raised concerning another of Norwest’s subprime lenders (beyond NHI, analyzed supra): Norwest Financial. The letter makes clear that Norwest Financial is a subprime lender, stating that “a finance company’s business is very different from that of a bank... Finance companies provide a high level of personal service to their borrowers, many of whom are high risk borrowers...”.

      Norwest Financial’s recent SEC Form 10-K, filed on March 15, 2000, reports its purchase, effective May 4, 1995, of another subprime lender, Island Finance. ICP became concerned when Island Finance opened a storefront lending operation in the heavily-minority South Bronx, and charged borrowers, without regard to their credit history, 25% interest, right up to the New York State usury cap. Soon thereafter, Wells Fargo abruptly closed down this office, and left a flyer on the storefront gate, directly customers to travel to another county (Queens) to make their payments. Question: THIS is the “high level of personal service” claimed by Mr. Stroup’s September 30, 1998 letter to the FRS? ICP thinks not. Rather, this reflects the predatory activity of Wells Fargo and its chain of subprime lenders, which includes the fifteenth largest retail subprime lender in the nation, Norwest Mortgage/Directors Acceptance (see National Mortgage News, April 10, 2000, Pg. 28).

    It is important to note that the percentage of Wells’ HMDA-reported loans that are subprime (2%, according to Wells’ April 28, 2000 letter to the FRS, at 4) misrepresents the portion of Wells’ lending that is subprime. Much of Wells’ subprime lending is home equity lending (which is not required to be reported under HMDA, perhaps explaining Norwest Financial’s lack of 1998 HMDA data); much of Wells’ subprime lending (through Norwest Financial and Island Finance) is consumer lending, not secured by residential real estate. Beyond the already-cited SEC Form 10-K, ICP enters the following into the record, from “Loan Sharks, Inc.: High-Interest Loans Are Soaking the Poor from the South Bronx to California - and Wall Street Can’t Get Enough,” The Village Voice, July 15, 1997, at 33:

Like many subprime operations, Norwest Financial, the high-interest unit of Norwest Corp., insists that, even with an average interest rate of over 21 per cent, it is providing a valuable service to its customers. Some of our loans are from a few hundred to a few thousand dollars, says Norwest’s Pat McFarland. Banks just don’t want to deal with those small numbers. But those small numbers add up quickly: Norwest Financial cleared $264 million last year -- the company’s most profitable unit.

    More recently, and in further support of the proposition that these Wells units are engaged not only in subprime, but in predatory lending, ICP enters the following into the record:

Earlier this year, the U.S. District Court for the Eastern District of California cleared the way for a class action to proceed against Norwest Financial, for allegedly improperly soliciting reaffirmation agreements and collected discharged debt. Robert J. and Esther N. Malone v. Norwest Financial California, et al., No. CIV. S-99-692 LKK/JFM (Feb. 3, 2000); in Texas, Norwest Financial paid “$869,435 to 3,000 customers to settle claims that the company misled them into buying insurance on loans.” See Tulsa (OK) World, Oct. 3, 1998, Norwest Financial Settles Texas Lawsuit (the suit was brought by the state attorney general). This pattern, combined with the demographics of lending analysis presented above, militate for the requested public meeting, and for the denial of this Application.

     Wells Fargo’s involvement in predatory lending is not confined, however, to such storefront operations -- it extends to formal corporate relationships with some of the worst (and most sued) predatory lenders, from Delta Funding to First Alliance. In order: Norwest Bank Minnesota, N.A. is listed, in SEC filings, as having a relationship with Delta Funding Home Equity Loan Trusts 99-2 and 99-3 -- by the time of these issuances (and Wells Fargo decisions to participate), not only had the New York Times run a detailed account of problems, including predatory pricing and apparent discrimination, at Delta -- the NYS Attorney General had openly accused Delta of race discrimination, in violation of the federal Equal Credit Opportunity Act. See, e.g., Bureau of National Affairs, June 24, 1999:

WASHINGTON (BNA) -- Delta Funding, a Woodbury, N.Y., mortgage lender, has settled claims of biased and predatory lending by agreeing to pay $ 6 million to alleged victims, NewYork Attorney General Eliot Spitzer announced June 23, calling the case "something that we hope will be a model for future actions."

According to a statement by Spitzer, Long Island-based Delta Funding has also agreed to allow aneutral party to monitor its lending practices for the next three years. In a teleconference with reporters, Spitzer and officials in the state civil rights bureau that handledthe case said the settlement averts what would have been a lawsuit against Delta in federal court.  Among other claims, one official said the state would have alleged violations of the Equal Credit Opportunity Act, found at 15 U.S.C. 1691-1691f. The ECOA prohibits discrimination in all lending, including housing loans.

Spitzer and other officials charged that Delta made over 1,000 "high interest, illegal loans tolow-income, minority residents in Brooklyn and Queens over the past three years." ...

Delta Funding was in the news earlier this year in connection with Deutsche Bank's acquisition of Bankers Trust Co. The Bronx-based Inner City Press/Community on the Move urged the Federal Reserve Board to turn down the deal, arguing among other points that Bankers Trust had business relationships with Delta, which Inner City Press at that time accused of "predatory lending" practices (72 BBR 292, 2/15/99).    

      See also, “U.S. Cites Abuses by Subprime Lender Delta Funding,” Reuters newswire, March 30, 2000, quoting the Director of the FTC’s Bureau of Consumer Protection that “Delta targeted these low income homeowners for high monthly payments, turning the American dream of homeownership into a nightmare,” and reporting that the Justice Department “alleged in the federal suit that the company had deliberately charged black women more for loans than similarly situated white men.”

     Despite all this, Norwest Bank Minnesota N.A. continued, and continues, to do business with Delta, and to make money off these predatory (and, according to the NYS Attorney General, discriminatory) loans.

     This is not an isolated occurrence at Wells / Norwest. Norwest Bank Minnesota, N.A. is listed in SEC filings are doing business with First Alliance (the subject of the New York Times’ March 15, 2000 expose), in connection with (at least) First Alliance Mortgage Loan Trusts 99-1, 99-2, 99-3, and 99-4. We direct the FRB to the detailed description of First Alliance’s predatory practices, as well as of the litigation, including by state attorneys general, that was pending against First Alliance at the time(s) Wells / Norwest decided to participate in, and make money from, these loans.

     Wells has not disputed that it does business with Delta Funding and First Alliance. Wells’ April 28, 2000 letter to the FRS, at 9. Delta has been sued for discrimination by the Department of Justice, HUD and the Federal Trade Commission. Wells conclusion is that “while not indifferent to the lending practices of the originators, Norwest Bank of Minneapolis, N.A. has no role in establishing their business practices, is unaware of any of the specific circumstances underlying the loans which are contributed to the pools and only becomes aware of lending concerns, if any, substantially after the fact.” Id. at 9.

      While Wells was perhaps unaware of “lending concerns” about Delta prior to entering its first transaction with Delta, the Response does not explain why, even after Delta was sued by the New York State Banking Department (“NYSBD”), the New York State Attorney General, and, more recently, the above-named federal regulators, it continued to do business with Delta. In fact, after Delta was being sued by the NYSBD, Delta’s previous trustee/custodian, Bankers Trust Company of California, refused to perform that role in Delta’s next securitization. Norwest Bank Minnesota, N.A. took Bankers Trust’s place (leading to an inference that Wells is even less “concerned” about its subprime partners’ practices than Bankers Trust was).

      The Atlanta foreclosure study referred to at the Department of Housing and Urban Development’s April 26 Anti-Predatory Lending forum states, at 13, that: “The lenders having the largest number of foreclosures with high interest rate spreads in the Atlanta area [include] Norwest Bank of Minnesota.” “Analyzing Trends in Subprime Originations and Foreclosures: A Case Study of the Atlanta Metro Area,” Abt Associates Inc., 2000.

      ICP also hereby enters into the record before the FRB on this application BankRate.com’s study of predatory practices by bank-affiliated subprime lenders (including “Wells Fargo’s Norwest Financial subsidiary”), at <http://www.bankrate.com/brm/news/mtg/20000224.asp>.

    Wells Fargo’s widespread and multi-faceted involvement in predatory lending must be closely inquired into in this proceeding, particularly in light of both the FRB Chairman’s March 22, 2000 statements (quoted supra) and Governor Gramlich’s April 14, 2000 speech in Syracuse, New York (justifying the FRB’s lack of action on the issue of predatory lending by noting that only a third of the 239 HUD-identified subprime lenders are bank affiliates). Governor Gramlich stated:

“HUD compiles an annual list of the subprime lenders that report data under the Home Mortgage Disclosure Act (HMDA). For 1998, this list showed 239 subprime lenders, of which 168 were regulated only by the Federal Trade Commission (FTC). Thirty-six of these institutions were banks or subsidiaries of banks and savings and loans that were regulated, and the remaining thirty-five were banks or subsidiaries of bank holding companies, where the holding company was regulated but the subsidiary operated with some freedom from the holding company and its regulator.”

    ICP maintains that Governor Gramlich’s presentation is misleading, including in a way relevant to this proceeding, in which the FRB must scrutinize Wells Fargo and its subsidiaries, for CRA, managerial resources, and fair lending. The HUD study that Governor Gramlich cited (the above-referenced 1998 HMDA Highlights, HUD Housing Finance Working Paper Series HF-009, 1999) makes clear that the list of 239 lenders includes only those HMDA-reporters which “specialize” (or are limited to) subprime lending. The report, in the introduction to the list Governor Gramlich referred to, says that “since HMDA does not identify... subprime loans, we were unable to separate out the... subprime loans of lenders that do not specialize in those loans. For example... Norwest ha[s] been active in the subprime market.”

     Norwest Mortgage has a subprime business unit called Directors Acceptance, which National Mortgage News lists as one of the largest retail subprime lenders in the country. But its loans, its HMDA data, are reported mixed in with Norwest Mortgage’s other HMDA data. Norwest Mortgage doesn’t (only) specialize in subprime loans, and so is not including in HUD’s list of 239 subprime lenders. The FRB, since it regulates the bank holding company Wells Fargo, has jurisdiction over Norwest Mortgage and Directors Acceptance. The Fed’s jurisdiction over (and responsibility for) that part of subprime lending that is predatory is larger than Gov. Gramlich present it.

     Gov. Gramlich’s quotation, above, ends by discussing “the remaining thirty-five were banks or subsidiaries of bank holding companies, where the holding company was regulated but the subsidiary operated with some freedom from the holding company and its regulator.” What Governor Gramlich didn’t say is that this “freedom” from the regulators is one that the Fed itself has DECIDED to give. The FRB can conduct examinations, including fair lending examinations, of any bank holding company subsidiary, including subprime lenders. In fact, the General Accounting Office, in November 1999 released a report, Large Bank Mergers: Fair Lending Review Could Be Enhanced With Better Coordination (GGD-00-16, Nov. 3, 1999), which urged the Fed to begin doing such exams, of BHC-subsidiary subprime lenders.

    Chairman Greenspan signed a September 20, 1999 letter to the GAO expressing the Fed disagreement with the GAO Report’s recommendation (“that the Board monitor the lending activities of nonbank mortgage subsidiaries of bank holding companies and reconsider [its] policy with respect to routine examination”). Chairman Greenspan stated that “[t]he matter is one that we recently studied at length.” The GAO report, at 14, stated that “[a]ccording to FRB officials, a long-standing FRB policy of not routinely conducting consumer compliance examinations of nonbank subsidiaries was formally adopted in January 1998.” The FRB’s decision not to examine BHC subsidiaries has let off the hook not only the 35 companies (on the HUD list) that Gov. Gramlich referred to, but also the subprime PARTS of other BHC-subsidiary lenders, like Norwest Mortgage / Directors Acceptance. To access the patterns and fairness of this Wells Fargo subprime unit’s lending, the FRB should request data on the loans attributable to Directors Acceptance in 1999 and 1998, in this proceeding. On the current record, this Application could not legitimately be approved.

V. WELLS’ BRANCH CLOSINGS; THE NEED FOR DISCLOSURE

     Wells Fargo has a history of service reductions, branch closings, and diminished focus on the local communities in which it buys banks: see, e.g., The Arizona Republic of April 30, 1999, at E1: “If you bank at Wells Fargo, your favorite branch might be closing this fall. The bank... is closing 35 locations statewide in October...”.

Las Vegas Review-Journal of February 6, 1999, at 1D: “Wells Fargo also listed 10 locations in Northern Nevada that will close” (in addition to 11 branches in Southern Nevada);

Albuquerque Tribune, September 3, 1998, at B1 (five branch closings); and

San Francisco Examiner of April 23, 1996 (“Wells Fargo & Co. will close 259 branches in California this summer and lay off 2,000 more employees”).

    Wells should be required to disclose its planned and/or projected branch closings, and, the comment period must be extended so that the public can review and comment on the foreseeable effects of this proposed merger.

VI. CONCLUSION

     For the reasons set forth above, the FRB should schedule and hold a public hearing on this Application, and, on the current record, the FRB must deny the Application.

    Communications regarding this proceeding, including Wells Fargo’s response, any and all FRB communications with Wells Fargo, and full copies of the Application, should be provided to the undersigned.

Respectfully submitted,

Matthew R. Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
1919 Washington Avenue
Bronx, New York 10457
Tel: 718-716-3540
Fax: 718-716-3161

     NOTE:  For or with more information, contact us.  This will be updated; stay tuned...

      Inner City Press/Community on the Move, along with other community organizations, has become increasingly concerned by Wells' involvement in questionable subprime (high interest rate) lending.    On April 17, 2000, ICP and the Alaska Public Interest Research Group (AkPIRG) filed a challenge to Wells Fargo & Co.'s application to the Federal Reserve Board to acquire National Bancorp of Alaska, the largest bank in that state.   Portions of ICP's and AkPIRG's April 17, 2000 protest, and subsequent filings, appear at the bottom of this page.

    While the Fed eventually approved Wells' Alaska acquisition, ICP and other community groups learned much in the proceeding about Wells' operations, subprime and otherwise.  This archive page contains the updates that ICP ran, from April through July, 2000.  On August 7, 2000, ICP began Round Two of its Wells Fargo campaign, filing a 20-page protest to Wells' application to acquire First Security and its 330 bank branches.  After ICP reviewed Wells' 1999 lending record, using just-released Home Mortgage Disclosure Act data, Wells Fargo's cynicism became even clearer:  Wells disproportionately denies applications from people of color for normal interest rate loans, while targeting these same communities with its high interest rate lenders.  Wells' proposed acquisition of First Security would also be "anticompetitive," giving Wells market shares as high as 40% in some markets, and making it the number one bank in Nevada, Idaho and Utah, and enlarging its already number one share in New Mexico.  And so Round Two has begun; it will be covered on ICP's ongoing Wells Fargo Watch Page.  We leave up this archive, to assist in any way possible with increased scrutiny of Wells Fargo...

    For or with more information, contact us.

* * *

Report of July 31, 2000

      Concern about Wells Fargo’s involvement in questionable subprime lending, and its proposed acquisition of First Security, continues to grow. A concern that many community groups share is Wells’ mixing of the mortgage lending data of its subprime Directors Acceptance subsidiary with the larger Wells Fargo Home Mortgage. In Wisconsin, most of WFHM’s loans in low income communities appear to be subprime loans by Directors Acceptance. Concern also exists about how the proposed acquisition of First Security would give Wells an anticompetitive market share (see below). Grounds for extending the August 14 expiration of the Fed’s comment period on Wells’ First Security application include Wells’ withholding of its branch closing plans, and heavy redaction of its divestiture plans.

     As provided to ICP, Wells Fargo’s application states that it proposes to “divest $1.4 billion in deposits and 37 branches in the following markets: Albuquerque, NM; Blaine, ID; Boise, ID; Box Elder, UT; Carson City, NV; Las Vegas, NV; Park City, UT; and South Lake Tahoe, California-Nevada.” The table beneath this sentence, which contains the specified, is repeatedly stamped “REDACTED, “REDACTED.” Certain lines of data are left: for Albuquerque, the unredacted line states that Wells proposes to divest 21 branches, and $720 million, still leaving an anticompetitive “HHI” index of 2,250. In Boise, Wells proposes to sell three branches, leaving an HHI of 2,478. In Las Vegas, Wells proposes to sell seven branches, leaving an HHI of 2,142. Why the other above-named markets are redacted -- is unclear. Developing...

    Until next time, for or with more information, contact us.

* * *

July 24, 2000

      The Federal Reserve last week corrected its public notice of Wells Fargo’s application to acquire First Security, and move back the expiration of the comment period to August 14. Wells Chief Operating Officer Les Biller traveled to Nevada (where Wells-First Security would create an anti-competitive colossus), and said that Wells will only know the specifics of which branches it would sell off “by mid-August” -- that is, right AFTER the Fed’s comment period would close... Developing...

* * *

July 17, 2000

     The Federal Reserve on July 14 posted notice that Wells Fargo’s application to buy First Security has been filed. The Fed’s notice said that its comment period will run only until August 3: a mere fourteen business days. ICP has requested a copy of the application, from which Wells will probably seek to withhold its antitrust memorandum (that is, the discussion of which branches it proposes to sell off). Groups throughout the region are mobilizing. This Beat will be heating up: ICP will summarize the application as soon as it received it. For now, a critique of Wells’ 1998 lending is set forth at the bottom of this page.

* * *

July 10, 2000

     Wells Fargo continues on its acquisition spree. Last week, Wells announced that it’s buying Brenton Banks of Iowa, for $264 million. Iowa’s previous 10% of deposits cap is gone. Let the price squeezing begin! (Deregulation is taking place at the state, as well as federal, level). Wells is buying the (subprime) credit card portfolio of Conseco / Green Tree, and the servicing of all Fleet’s mortgages in the West. Meanwhile, the Federal Reserve has still not provided notice of Wells’ required application for regulatory approval to acquire First Security. And the Wells beat goes on...

* * *

July 5, 2000

     Wells Fargo has yet to apply to the Federal Reserve Board for its proposed acquisition of First Security. In the interim, Wells Fargo Home Mortgage has been sued for the inclusion on its web site of a “Community Calculator” which allegedly perpetuates racial steering, and provides descriptions of communities of color in terms of their lifestyles: “Splurge on fast food and chicken restaurant take-out. Leisure activities including going to bars and dancing... Top-ranked media preferences including reading the National Enquirer, Playboy, Soap Opera Digest and Soap Opera Weekly.” Minneapolis Star Tribune, June 23, 2000, 1D. According to the San Francisco Chronicle of June 22, 2000, when Wells Fargo Home Mortgage’s web site’s “locator was told that a home buyer living in San Francisco’s largely black Bayview-Hunters Point neighborhood was moving to New York City, the service steered the buyer to similar communities in Brooklyn, Newark, N.J. and East Orange, N.J..” Wells has now disconnected this “service” from its web site, but the issue will in all probability surface on Wells’ application to acquire First Security...

* * *

Updated of June 26, 2000:  On June 21, the Federal Reserve Board approved Wells Fargo’s application to acquire National Bancorp of Alaska (NBA). While, based on the predatory lending and antitrust issues that had been raised, the Fed went over its 60-day processing period, the final order, 32 pages in length, side-steps most of the issues raised. For example, while the Fed’s record contains proof that Wells’ Norwest Bank Minneapolis, N.A. has been the trustee for the much-sued subprime lenders Delta Funding and First Alliance, the Fed’s order recites that “Wells Fargo has stated that as trustee it has no knowledge of or control over the credit criteria of the [mortgage] bond issuer.” This is an absurd response, given that Wells continued doing business with Delta after it was being sued for, and even after it settled charges of, racial discrimination. How then does Wells Fargo “ha[ve] no knowledge”?

    As to Wells Fargo’s own questionable subprime lending, through its non-bank subsidiaries, the Fed’s order is even more vague and perfunctory than orders the Fed issued prior to Chairman Greenspan’s March 2000 claim to be committed to root out predatory lending. The Order only mentions Wells Fargo’s banks; no reference is made to Norwest Financial, or Directors Acceptance. The Treasury Department’s and HUD’s June 20 report on predatory lending explicitly recommends that the Fed conduct examinations of non-bank holding company subsidiaries like Norwest Financial. The Fed, however, is moving backwards in this regard, choosing now to omit any reference to disparities at, and issues raised about, non-bank subsidiaries.

     The Fed refuses to meaningfully enforce the antitrust laws, either. Despite Wells’ and NBA’s combined 60% market share of mortgages in the Juneau, Alaska market, the Fed’s order claims that it is only required to consider concentration levels in the “cluster” of banking services (rendered moot by the 1999 Gramm-Leach-Bliley Act). While stating that the mortgage lending market is “local,” the Fed’s order goes on to declare Wells Fargo in Alaska “only participates in a submarket of remotely delivered home mortgage lending that is regional or national in scope.”    So wait-- is the market “local,” or “regional [and] national”? The Fed goes back and forth -- whatever it takes to approve an acquisition.

    ICP and the Alaska community groups which had opposed Wells’ application received no documents in the weeks leading up to the Fed’s vote. Then, the day before the vote, Federal Express packages arrived from Wells, providing at the last minute copies of letters from Wells to the Fed, dated June 5, June 14 and June 19, 2000. Wells was supposed to have sent copies of these to the commenting groups in “real time” -- as they were submitted to the Fed. But Wells waited until the day before the Fed’s vote, so that no reply to the Wells letter could be submitted. Certain technical information in Wells’ late-provided letters (the renaming of various subprime subsidiaries; the May 1, 2000 voluntary “death” of Norwest Home Improvement, which was strongly criticized in the April 18 protest (see below), etc. - will prove of use on future Wells Fargo expansion applications. Wells itself invites protracted and on-going fights, by cynically withholding documents until the last minute, providing data in such a way that community groups without mainframe computers cannot read it, etc.. The bell has sounded on Round One...

Update of June 19, 2000: Surprisingly, the Federal Reserve Board has yet to put Wells Fargo’s application to acquire NBA -- a deal announced in December 1999 -- on its agenda for a vote. Scheduled for Fed review on June 19 is National Commerce’s application to acquire Central Carolina Banks - a deal announced in late March 2000. The issues raised below on this page may explain some of that delay (along with Wells Fargo’s intransigent position on the anti-competitive effects its acquisition of NBA would have). But hope remains that Wells’ involvement in questionable subprime lending is actually being reviewed by the Fed (and by the Office of the Comptroller of the Currency, on Wells’ application to merge its Wisconsin banks, on which these issues have also been raised).

    Meanwhile, as to First Security, Wells officials traveled to Idaho recently, predicting a September vote by First Security’s shareholders, and an October “closing” of the deal. Wells’ has yet to submit an application to the Federal Reserve Board. Groups in many states are waiting for this...

   In Oregon, home equity lenders employed by Wells Fargo are moving toward unionizing. Wells spokesman Tom Unger says that none of Wells’ employees are members of a union. Those NBA employees who would remain, if and when Wells’ acquisition goes through, may want to look into these Wells-Oregon developments, which we will be following in this space...

Update of June 12, 2000 -- Even while its application to acquire National Bancorp of Alaska continues to pend before the Federal Reserve Board, Wells Fargo announced last week it is acquiring Charter Financial of New York. On June 8, NBA’s shareholders (well, the Rasmusons own 55% of the company) approved the deal. 175 of the 1,250 jobs at NBA will (or would) be eliminated.... A director of Wells’ other target, First Security, quit last week, citing possible conflicts of interest. And Wells has been charged in a criminal complaint in California, according to the American Banker newspaper...

Update of June 5, 2000:  Last week, ICP finally received a copy of Wells Fargo’s answers to the Federal Reserve’s questions on this issue (ICP was never provided with a copy of the Fed’s May 3 question letter, and was only given a copy of Wells’ May 19 response by regular mail from the San Francisco Fed on May 26). The Fed tossed a soft ball:

“Describe Wells Fargo’s programs to monitor compliance with the fair lending laws... Discuss how these programs are implemented at Wells Fargo’s bank and nonbank subsidiaries... [I]nclude a description of Wells Fargo’s programs, policies, and procedures to ensure that the subprime lending activities are conducted in compliance with fair lending and consumer protection laws and regulation.”

    Wells’ answer is pure boiler plate: “All business units are required to develop and maintain Polices and Procedures covering all areas of business, including Fair Lending. To the degree that these entities engage in subprime lending, these fair lending policies and procedures also cover subprime lending activities.”

     But neither the public nor the Federal Reserve can even assess the fairness of Wells Fargo’s subprime lending: Wells’ main subprime unit, Directors Acceptance, mixes its mortgage data in with the larger Wells Fargo Home Mortgage. Requests have been made that Wells break out the data on the subprime loans; Wells has responded that it “could” do this, but “won’t.” Will the Fed accept this?

     Wells’ letter to the Fed also states that the directors of National Bancorp of Alaska would be James R. Campbell (currently EVP of “Minnesota Banking”), Ross Kari (CFO), and San Francisco-based general counsel Stanley Stroup. Remember -- it’s not an acquisition, it’s an “alliance”...

    Also last week, Wells Fargo announced a new CRA officer -- but only for California. It’s Timothy G. Hanlon, who began at Wells in Human Resources. Wells’ press release did not mention the abrupt departure of previous, company-wide CRA officer Karen Wegmann; no similar announcements have been made for other Wells states. The release quotes EVP Terri Dial (but does not mention that Wells’ Nevada banking franchise has been rolled in to “California Banking;” the release does not mention Nevada, nor New Mexico, where Wells and First Security are the number one and two banks). Opposition continues to mount...

Update of May 30, 2000:   On May 25, the Federal Reserve Board finally responded to ICP’s April 18 Freedom of Information Act request about the Fed’s oversight of the conditions it imposed on the Wells Fargo - Norwest merger in 1998. Included is a list of Wells Fargo branch closings in 1999 (18 in Nevada alone). Wells Fargo marked the list “Confidential,” despite its presumptively public nature. Perhaps that explains the Fed’s five week delay in responding. The Department of Justice last week required Wells Fargo to sell off branches in Nebraska, to do an acquisition there. There’s still no indication of how Wells proposes to deal with the overconcentration of mortgage and consumer finance markets in Alaska, if it combines with NBA.

    Wells is distracted: next down the pike is its application to acquire First Security, and its large operations in Utah, Idaho, Nevada and New Mexico. Community groups in these states are watching -- Wells Fargo no longer even pays lip service to CRA lending commitments. Karen Wegmann (who ran Wells’ pre-Norwest CRA department, and reported directly to Wells’ chairman and CEO) “retired” a few months ago; Wells issued no announcement or explanation. Earlier this month at the Consumer Bankers Association meeting in Washington, Wells’ CRA numbers-cruncher Virginia Greene told attendees that Ms. Wegmann will not be replaced, that, going forward, Wells will let each state bank runs (and defend) its own CRA record. This is why the “old” (pre-Norwest) Wells’ lending commitment was not expanded to the Norwest states, nor to the states in which the new Norwest-run “Wells” is expanding. What IS being expanded into these states is Wells subprime lending, through Directors Acceptance, Norwest Home Improvement and Norwest Financial. Community and consumer scrutiny of these companies will have to increase and expand...

Update of May 22, 2000:   Last week, ICP obtained a copy of the Federal Reserve Bank of San Francisco’s “additional information” request to Wells Fargo, in connection with Wells’ application to acquire the largest bank in Alaska. Even though Wells’ mortgage company is the nation’s largest, the SF Fed didn’t ask a single question about antitrust (or “competitive effects,” to use Fed-speak) issues. The four questions asked, in the SF Fed’s April 18 letter to Wells, are laughable: give us a copy of the Merger Agreement, clarify the names of three subsidiaries, “please advise the anticipated consummation date,” and please provide the affidavits of publication -- that’s it. Meanwhile, Wells and National Bancorp of Alaska together control 66% of the mortgage market in Juneau, as simply one example...

    Not included in the three subsidiaries the SF Fed asked about (and apparently ignored by the Fed): Wells Fargo owns one of the largest subprime lenders in the country, Directors Acceptance -- but D.A. does not report its mortgage lending separately, rather, blended in with the largest Wells Fargo Home Mortgage. ICP on April 18 asked Wells to break out Directors Acceptance’ data. On May 16, Wells responded that “Directors Acceptance is not a subsidiary but a division of Wells Fargo Home Mortgage and therefore it not required to report separately for HMDA.” Question (that, a question one would think that the Fed would be asking): how would Wells Fargo be “self-assessing” the fairness of its subprime lending, if it does not break this data out for analysis? Developing...

     On April 18, ICP submitted a Freedom of Information Act request, narrowly requesting the Fed’s follow-up on the conditions it imposed in approving the Wells-Norwest combination in 1998. A month later, on May 16, the Fed responded, stating: “We are extending the period for our response until May 31, 2000, in order to consult with another agency or with two or more components of the Board having a substantial interest in the determination of this request.” The requested documents don’t concern any “[]other agency;” the other “components of the Board” are across the street from each other, on C Street. It seems hard to believe that one couldn’t “consult” with them in a month’s time... The documents concern Wells Fargo’s previous branch closings, and will be reviewed in this space, upon receipt...

Update of May 15, 2000:  No word from the Fed yet on the public meeting requests, nor on the requests that the public comment period be extended. It seems clear that it should be extended, since, for example, the Fed only responded to ICP’s April 6 Freedom of Information Act request by cover letter dated May 8, saying that “the staff’s search of Board records has revealed several documents that are responsive to your request... The Board’s Freedom of Information Office will provide you with a copy of the documents being made available to you pursuant to this authorization under separate cover.” One problem: in the four days after this letter, ICP didn’t receive any of the documents; on the afternoon of Friday, May 12, ICP got a phone message from the Fed, saying that 165 pages were about to be faxed (they have yet to arrive, as of May 14).

     Most interesting (while still waiting for the above-referenced documents) is the “TransitioNews” publication put out by NBA, subtitled “A Merger Newsletter for National Bank of Alaska Employees.” In it, NBA’s Richard Strutz begins, “As you’ve heard, two petitions were filed protesting the merger. Wells Fargo staff filed a response to these and we expect a regulatory decision by early June... we do not anticipate any rulings that would adversely impact the merger.” Note to Mr. Strutz: more than “two” petitions have been filed; and, if it’s important enough to be your introduction to your “Merger Newsletter,” why is the opposition not even mentioned in your Proxy Statement, filed with the SEC? Mr. Strutz continues that “the announcement regarding the change in our Wells Fargo reporting structure from John Nelson to John Berg was a surprise, but ultimately it does not impact our ability to ensure a smooth transition for customer and employees.” Strutz attaches a seven paragraph “Introduction to John Berg,” who apparently lives in Minneapolis and would run the ex-NBA, all local advertisements characterizing the acquisition as an “alliance” to the contrary. Berg’s “come” on the scene (to cover Alaska and Montana for Wells), because Bill Nelson’s been called away to try to acquire and integrate First Security...

   In Alaska, even without regulatory approval, NBA and Wells are moving forward. The NBA Newsletter, at 3, states that “Mortgage Loan Production and Northland Mortgage Company are two areas that will be undergoing major changes at the official merger closing. Already, Northland Mortgage offices in Anchorage and Fairbanks are moving physically into NBA Mortgage Loan Production offices, although in Anchorage they will continue to operate separately until the closing. At the closing (approximately June 22), the two entities will become Wells Fargo Home Mortgage...”. (To review this company’s record, when it was named Norwest Mortgage, see below).

   On May 9, ICP and AkPIRG received from Wells Fargo a faxed copy of Wells’ purported antitrust response, dated May 5. Wells’ response focuses on the number of Wells Fargo mortgage and consumer finance employees in particular markets, rather than the applying companies’ actual market shares. This is perhaps understandable: in the Juneau market, for example, in 1998 NBA made 432 HMDA-reported loans, Norwest Mortgage made 421 HMDA-reported loans; Norwest Funding and NBA’s Northland Credit together made 13 loans. Combined, the proposed combined entity made 866 of the 1305 HMDA-reported mortgages in this market in 1998 -- a 66% market share. The competitive effect in this market far surpasses any “HHI” level of concentration the FRS has ever allowed. Also requiring review (and divestiture) are the Fairbanks, Kenai, Ketchikan, Mat-Su and Sitka markets, at a minimum.

     Wells’ May 5 submission on antitrust issues is also internally inconsistent. On the one hand, it argues that review be limited to “a product market consisting of a cluster of banking services traditionally offered in the commercial banking industry,” citing U.S. v. Philadelphia National Bank, [“PNB”] 374 U.S. 321 (1963)); on the other hand, it states that “[c]onsumer financial companies and banks generally do not complete in the same segment of the consumer lending business.” Wells Fargo is a holding company that has business units that compete in different product markets: for example, Wells Fargo, N.A. competes in the “PNB” cluster; Norwest Financial and Norwest Mortgage compete in the separate consumer finance product market. In other merger proceedings, the FRB has inquired into competitive issues in the consumer finance (and mortgage) product markets: for example, on NationsBank’s applications to acquire Boatmens Bancshares and Barnett; and on Norwest’s notice to acquire Prudential’s mortgage business. As a matter of law, analysis of competitive issues in connection with the proposed mergers of bank holding companies, particularly but not only after passage of the Gramm-Leach-Bliley Act of 1999, cannot be limited to the Philadelphia National Bank “cluster.” In the relevant product and geographic markets, this proposed merger would significantly injure competition, and consumers.

     ICP’s and AkPIRG’s reply analyzes 1998 HMDA data -- Wells Fargo has yet to respond to ICP’s April 18, 2000 request for Wells’ 1999 HMDA Loan Application Registers. We’ve asked that the comment period be extended until after Wells Fargo responds to that request, made more than three weeks ago. In the interim, we’ve directed the Fed to the Kodiak Daily Mirror of April 19, 2000, recounting NBA’s foreclosure on the power plant of an entire community, Akhiok.

     This page will be updated, when we heard from the Fed about the comment period extension and public meeting requests, and/or receive the 165 pages of new documents that the Fed has promised.

Update of May 8, 2000:  While Wells Fargo continues to delay its response on antitrust issues, more comments opposing and requesting public hearings on the application have been going in to the Federal Reserve. For example, on April 28, the Alaska Inter-Tribal Council wrote to the Fed, requesting public meetings.  On May 3, a detailed Alaska-specific comment went in, stating for example that “In San Francisco, they will simply not understand: permafrost, whiteout, regional corporation, native allotment, limited entry, subsurface estate, IFQ, subsistence, ANCSA and ANCILA, and a host of other concept peculiar to our subcontinent... I have been informed that Wells Fargo intends to close NBA’s Contract Collection department, and sell the accounts to a private firm in Tacoma... seller financing has always been a large part of the real estate market here... Removal of the payment point and the collection documents out of state is going to create problems for both payers and beneficiaries... A merger such as NBA/Wells Fargo in Alaska is NOT the same as a merger in the contiguous states. The Federal Reserve should hold public hearings to clarify these and many other considerations.”

    On April 28, Wells Fargo and NBA filed their Form S-4 (Proxy / Prospectus) with the Securities and Exchange Commission, for NBA's shareholder meeting of June 8.  The S-4 discloses that NBA had been in discussions with Wells Fargo to be acquired since mid-1999.  The S-4's approach to the regulatory approvals that are required is, to say the least, minimalistic.  The "Regulatory Approvals" section, on page 23 of the S-4, does not mention the Community Reinvestment Act, much less the Alaska organizations that have commented on the application.  It does, however, state that "Wells Fargo has filed applications with the Federal Reserve Board and the Alaska Department of Commerce and Economic Development."  But as of May 3, this Department's Chief Examiner, Terry Lutz, stated that "[w]e have yet to receive a copy of the application for the proposed transaction and thus are not able to make any firm decisions at this time."  

    The Fed has not yet responded to the requests for public meetings. On May 5, ICP telephoned the Federal Reserve Bank of San Francisco, to ask if Wells had submitted its antitrust response yet. No, was the answer. And yet the comment period is set to expire on May 10... Requests for extension of the comment period, on these grounds, will be made.

    ICP has also received detailed complaints about certain NBA collections practices, that have apparently changed (for the worse) since NBA announced its deal with Wells Fargo. Click here to view ICP’s new Alaska page, for the whole story (“Bark in Homer”). This will be updated...

Update of May 1, 2000:   On April 28, ICP received a copy of Wells’ first written response to the comment below. Wells demands that “there should be no public hearings,” and annexes a letter on NBA stationary, saying among other things that it “has no intention to close any rural branches in rural Alaska.” NBA’s letter states that “Wells does not plan to have anyone permanently stationed up here.” Beyond the surrealism of the statement, it contradiction Wells’ actual application to the Fed, which states the Wells’ community marketing programs will be applied to the ex-NBA (which is what one would expect, when a large bank acquires a much smaller one).

    Here’s a summary and response to the other defenses that Wells offers:

Wells acknowledges that “Directors Acceptance, Norwest Home Improvement, Inc. (NHI), Norwest Financial, Inc. and Island Finance are all subprime lenders,” Resp. at 4. However, Wells seems to miss the point of the analysis presented in the Protest: namely, that these Wells high-interest rate units demonstrably target protected classes much more frequently than Wells’ normal interest rate lenders do. Wells tried to obfuscate this point by stating, for example, that “a significant percentage (79%) of the 1,816 applications taken by NHI in the three referenced MSAs had no race information, making it impossible to draw any statistically valid conclusions based on race.” Resp. at 5.

First, NHI’s percentage of “race not reported” applicants gives rise to a presumption of violations of the Home Mortgage Disclosure Act (“HMDA”), which requires lenders to request, record and report race and other information for mortgage loans, so that the fair lending laws can be enforced. Wells provides no explanation for the high percentage of applications for which NHI fails to do this. Second, unless Wells can show that protected classes for some reason had their race reported more frequently than white applicants, it is reasonable to extrapolate from those 21% of the 1,816 applications for which race was reported.

Protestants compared the demographics of lending of NHI and Norwest Mortgage. Wells argues in its defense that Norwest Mortgage’s data includes Directors Acceptance, a subprime unit (see supra, and Resp. at 4). That makes the disparities all the more striking (but note also that Wells begins it defense by claiming that less than 2% of its HMDA-reported loans are subprime, making its “NMI-mixed-with-Directors Acceptance” defense dubious).

It is important to note that the percentage of Wells’ HMDA-reported loans that are subprime (2%, according to the Resp. at 4) misrepresents the portion of Wells’ lending that is subprime. Much of Wells’ subprime lending is home equity lending (which is not required to be reported under HMDA, perhaps explaining Norwest Financial’s lack of 1998 HMDA data); much of Wells’ subprime lending (through Norwest Financial and Island Finance) is consumer lending, not secured by residential real estate. Beyond the already-cited SEC Form 10-K, Protestants enter the following into the record, from “Loan Sharks, Inc.: High-Interest Loans Are Soaking the Poor from the South Bronx to California - and Wall Street Can’t Get Enough,” The Village Voice, July 15, 1997, at 33: “Like many subprime operations, Norwest Financial, the high-interest unit of Norwest Corp., insists that, even with an average interest rate of over 21 per cent, it is providing a valuable service to its customers. Some of our loans are from a few hundred to a few thousand dollars, says Norwest’s Pat McFarland. Banks just don’t want to deal with those small numbers. But those small numbers add up quickly: Norwest Financial cleared $264 million last year -- the company’s most profitable unit.”

More recently, and in further support of the proposition that these Wells units are engaged not only in subprime, but in predatory lending, the Protestants enter the following into the record:

Earlier this year, the U.S. District Court for the Eastern District of California cleared the way for a class action to proceed against Norwest Financial, for allegedly improperly soliciting reaffirmation agreements and collected discharged debt. Robert J. and Esther N. Malone v. Norwest Financial California, et al., No. CIV. S-99-692 LKK/JFM (Feb. 3, 2000); in Texas, Norwest Financial paid “$869,435 to 3,000 customers to settle claims that the company misled them into buying insurance on loans.” See Tulsa (OK) World, Oct. 3, 1998, Norwest Financial Settles Texas Lawsuit (the suit was brought by the state attorney general).

This pattern, combined with the demographics of lending analysis presented in Protestants’ April 17 submission, militate for the requested public meeting, and for the denial of this Application.

Wells’ responses to Protestants’ HMDA analysis are essentially technical: in some MSAs, Wells claims that the number of applications is “too low to warrant any statistically significant conclusions” (Resp. at 5) -- this, while Wells elsewhere in the Resp. makes statistical arguments on much lower numbers. For example, Wells states that “of the 5 branch consolidations referenced in New Mexico, only 1 or 20% was in a low- to moderate-income census tract, which is less than the percentage of LMI tracts in New Mexico.” Resp. at 3.

Wells chides the Protestants for analyzing “only” 11 MSAs (Resp. at 5) -- but 11 metro areas is certainly a statistically significant sample, and an institution cannot excuse under-performance in 11 cities by pointing at other cities (none of which Wells in any event analyzes in its purported Response).

Wells does not dispute that it does business with Delta Funding and First Alliance. Resp. at 9. Delta has been sued for discrimination by the Department of Justice, HUD and the Federal Trade Commission. Wells conclusion is that “while not indifferent to the lending practices of the originators, Norwest Bank of Minneapolis, N.A. has no role in establishing their business practices, is unaware of any of the specific circumstances underlying the loans which are contributed to the pools and only becomes aware of lending concerns, if any, substantially after the fact.” Resp. at 9.

While Wells was perhaps unaware of “lending concerns” about Delta prior to entering its first transaction with Delta, the Response does not explain why, even after Delta was sued by the New York State Banking Department (“NYSBD”), the New York State Attorney General, and, more recently, the above-named federal regulators, it continued to do business with Delta. In fact, after Delta was being sued by the NYSBD, Delta’s previous trustee/custodian, Bankers Trust Company of California, refused to perform that role in Delta’s next securitization. Norwest Bank Minnesota, N.A. took Bankers Trust’s place (leading to an inference that Wells is even less “concerned” about its subprime partners’ practices than Bankers Trust was).

Wells’ Response states that “Wells Fargo will respond next week under separate cover to the Protestants’ comments about the competitive impact of our proposed acquisition.” But the Fed’s regulations give applicants only eight business days to respond to issues raised in opposition to their applications. See 12 C.F.R. 262.25(d)(1)(iii). Since Congress provided that the FRB cannot approve mergers that would have anticompetitive effects (see Bank Holding Company Act (“BHC Act”), Sections 3 and 4), the “Protestants’ comments about the competitive impact” of the proposal must be considered substantive (as implicitly acknowledged by Wells’ Resp., quoted supra). It is illegitimate for Wells to defer its response on this important issue until after the eight business day deadline has passed. This also prejudices the Protestants’ rights to reply to Well’s response on this issue. The comment period must accordingly be extended; furthermore, this militates for the public meeting the Protestants have timely requested.

     Currently, the comment period expires on May 10. In Alaska, AkPIRG is coordinating some supplemental comments (and also has some sample comments shorter that the presentation below -- AkPIRG’s hyperlink is here). AkPIRG has noticed that since the merger of Wells Fargo and Norwest in 1998, Wells Fargo has gotten 35 approvals from the Federal Reserve System -- all but one of them from the Federal Reserve Bank of San Francisco, on a “delegated” basis (meaning that the SF Fed only had the power to approve, not to deny). This is reflective of a number of things: that Wells is among the most acquisitive banks in the country; and that the Federal Reserve Board has not scrutinized Wells’ practices, in an adversary proceeding, in more than a year and a half. So this one’s important, both in Alaska (where NBA is the largest bank), and on the nationwide subprime / predatory lending issues analyzed below. This will be updated...For or with more information, contact us.

* * *

Update of April 24, 2000 -- Wells’ initial public response to the issues raised by ICP, AkPIRG and two other Alaska organizations, RuralCAP and Alaska Village Initiatives (AVI), was to claim to be “the leading U.S. lender to minority homebuyers.” See, e.g., Anchorage Daily News, April 19, 2000. But given Wells’ focus on high interest rate, subprime loans, Wells’ targeting of people of color is among the problems the comment below has raised. Wells’ Portland, Oregon-based spokesman, Tom Unger, claimed in the same article that “if we were charging outrageous rates, they could go to other competition.” If caveat emptor (“buyer beware”) was sufficient as a consumer protection regime, no other laws would exist. Wells’ more substantive response has yet to be seen.

    Meanwhile, Wells’ focus apparently moves on. Wells’ next planned acquisition, announced April 10, of First Security, has resulted in a re-shuffling of Wells’ empire. An internal memo obtained by ICP reveals that the new plan is to lump Alaska with Montana, to be run by John Berg, based in Minneapolis (Mr. Berg was appointed to the board of a St. Paul, MN organization last month; earlier this year he sold Wells Fargo stock worth over $500,000).

    Wells has been given eight business days to respond to the comment below. The comment period runs until May 10, 2000.   For or with more information, contact us.

PETITION TO DENY AND HEARING REQUEST BY INNER CITY PRESS / COMMUNITY ON THE MOVE AND THE ALASKA PUBLIC INTEREST RESEARCH GROUP IN OPPOSITION TO THE APPLICATIONS OF WELLS FARGO CORPORATION TO ACQUIRE NATIONAL BANCORP OF ALASKA

APRIL 17, 2000

   On behalf of Inner City Press/Community on the Move (“ICP”) and the Alaska Public Interest Research Group (“AkPIRG;” collectively, the “Protestants”), this is a timely comment opposing and requesting hearings on the applications and notices of Wells Fargo Corporation and its subsidiaries, including Norwest Financial, Norwest Mortgage, and Norwest Bank Minnesota, N.A. (collectively, “Wells Fargo”) to acquire National Bancorp of Alaska and its subsidiaries (“NBA”).

    As set forth below, Wells Fargo has a history of service reductions, branch closings, and diminished focus on the local communities in which it buys banks. This bodes badly for Alaska communities, particularly rural communities (analyzed in detail elsewhere in this Comment, and in the simultaneous filing by Alaska Village Initiatives and RuralCAP [“AVI/RuralCAP”] with which the Protestants concur). In many rural Alaskan communities, NBA is the only bank. Closure of these bank branches could be the death-knell for these local economies.

    The Protestants are also concerned by Wells Fargo’s extensive involvement in subprime, and, Protestants contend, predatory lending. Wells Fargo, beyond its insured depository institutions, owns at least four large subprime lending subsidiaries: Norwest Financial, Island Finance, Norwest Mortgage/Directors Acceptance, and Norwest Home Improvement Inc.. Furthermore, Norwest Bank Minnesota, NA, partners with many subprime lenders, including the recently bankrupted First Alliance Mortgage (the subject of the New York Times expose of March 15, 2000, incorporated herein by reference) and Delta Funding (which was sued for racial discrimination by the New York State Attorney General in 1999).

    The Federal Reserve Board’s Chairman has recently expressed the Board’s worries about predatory lending, stating: “Of concern are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosure. The Federal Reserve is working on several fronts to address these issues...”. “Remarks of Chairman Alan Greenspan Before the Annual Conference of the National Community Reinvestment Coalition,” March 22, 2000. See also, Reuters newswire of March 22, 2000: “Greenspan Says Fed to Target Abusive Lending;” American Banker of March 23, 2000, “Greenspan Wades In On Predatory Lending, Joining Other Regulators.”

    Given the Federal Reserve Board’s recently expressed concern about predatory lending, and the Chairman’s statement that the FRB is “working... to address these issues,” this Comment will begin with an examination of Wells Fargo’s involvement in subprime and predatory lending.

   Consider the record of Norwest Home Improvement, Inc. (“NHI”), a Wells Fargo-owned subprime lender based in Alabama. The 1998 Home Mortgage Disclosure Act (“HMDA”) data reported by this entity, which lends at higher than normal interest rates, shows a targeting of communities of color with high cost loans.

   In the Birmingham, Alabama Metropolitan Statistical Area (“MSA”) in 1998, this Wells Fargo subprime lender made 111 home improvement loans to African Americans, and fewer such loans (77) to whites. This is to be compared with the aggregate industry’s home improvement lending in this MSA in 1998: 466 loans to African Americans, and 1733 loans to whites. NHI, a high interest rate subsidiary of Wells Fargo, targets minorities for high interest rate credit.

   In the Tuscaloosa, AL MSA in 1998, NHI made 13 home improvement loans to African Americans, and 11 to whites. Compare these proportions to the aggregate industry’s home improvement lending in this MSA in 1998: 62 loans to African Americans, and 190 loans to whites. NHI, a high interest rate subsidiary of Wells Fargo, targets minorities for high interest rate credit.

   In the Philadelphia, PA MSA in 1998, NHI made 27 home improvement loans to African Americans, six to Latinos, and 14 to whites. Compare these proportions to the aggregate industry’s home improvement lending in this MSA in 1998: 2,032 loans to African Americans, 531 loans to Latinos, and fully 17,484 loans to whites. NHI, a high interest rate subsidiary of Wells Fargo, clearly targets minorities for high interest rate credit.

     This is perhaps most clearly demonstrated by comparing the lending patterns of this Wells Fargo high interest rate lender, NHI (see supra) with Wells Fargo’s normal interest rate lender, Norwest Mortgage. In the Philadelphia MSA in 1998, Norwest Mortgage (“NM”) made 106 conventional home purchase loans to African Americans -- versus fully 2,224 such loans to whites. Compare this 21-to-1 white to African American NM ratio to the subprime NHI’s 0.52-to-1 white to African American lending ratio. Wells Fargo is forty times more likely to lend at high interest rates to African Americans than to whites, in the same MSA.

    Another example: in the above-analyzed Birmingham, AL MSA (where Wells Fargo’s subprime lender NHI made 111 loans to African Americans and 77 to whites), Wells Fargo’s normal interest rate lender, NM, made 50 loans to African Americans and 156 loans to whites. Compare this 3.12-to-1 white to African American NM ratio to the subprime NHI’s 0.69-to-1 white to African American lending ratio. In this MSA, Wells Fargo is over four-and-a-half times more likely to lend at high interest rates to African Americans than to whites, in the same MSA. Protestants contend that Wells Fargo and its subsidiaries are presumptively violating the fair lending laws, and Protestants call on the FRB to make the required filing with the U.S. Department of Justice. On the current record, this proposed merger should be denied.

   The fair lending (and CRA) problems at Wells Fargo are also demonstrated by considering the denial rates, for whites and minorities, at Norwest Mortgage. In the above-analyzed Philadelphia MSA, NM denied the conventional home purchase loan applications of African Americans 3.65 times more frequently than those of whites.

   In Chicago, where NM in 1998 made 3,785 conventional home purchase loans to whites, and 170 to African Americans, NM denied the applications of African Americans 3.71 times more frequently than those of whites.

   In Cleveland, where NM in 1998 made 665 conventional home purchase loans to whites, and only 37 to African Americans, NM denied the applications of African Americans 4.72 times more frequently than those of whites.

   In the Greensboro, NC MSA, where NM in 1998 made 983 conventional home purchase loans to whites, and only 37 to African Americans, NM denied the applications of African Americans 5.52 times more frequently than those of whites.

   In Jackson, Mississippi, Norwest Mortgage in 1998 denied the applications of African Americans over seven times more frequently than those of whites.

   In the Washington, D.C. MSA, Norwest Mortgage in 1998 denied the applications of African Americans 3.69 times more frequently than those of whites.

   And, in the Buffalo, New York MSA, Norwest Mortgage in 1998 denied the conventional home purchase mortgage applications of African Americans a whopping 12.34 times more frequently than the applications of whites.

    These disparities at Norwest Mortgage are long-standing, and must finally be addressed and acted on (including the above-request fair lending enforcement referral to DOJ) in this proceeding. ICP raised the disparities at Norwest Mortgage to the Federal Reserve Board in 1996; Norwest responded that it “ha[d] hired new community development loan officers in a number of MSAs with predominantly minority populations to focus on underserved communities and anticipate[d] employing a total of 375 such officers by 1997.” See 82 Fed. Res. Bull. 683 (July, 1996); see also Norwest’s underlying April, 1996 letter to the FRS’ James Lyons).

   Despite this commitment, as of Norwest’s (now Wells Fargo’s) General Counsel’s letter to the FRS dated September 30, 1998, Norwest Mortgage, well after the “1997” deadline for having in place “375 such officers,” had only 152 such officers (“CDSRs”) in place. This 1998 letter (addressed to the FRBSF’s Michael E. Johnson) also evaded the questions that had been raised concerning another of Norwest’s subprime lenders (beyond NHI, analyzed supra): Norwest Financial. The letter makes clear that Norwest Financial (which, as set forth below, is already active in Alaska) is a subprime lender, stating that “a finance company’s business is very different from that of a bank... Finance companies provide a high level of personal service to their borrowers, many of whom are high risk borrowers...”.

    The Protestants have recently conducted testing of Norwest Financial, including in Anchorage, Alaska. A customer was provided a loan at 18% interest, despite having pristine credit history. This is hardly “pricing by risk” -- rather, this is gouging.

    Alaskan consumers are particularly vulnerable to predatory lenders as a result of a state’s Permanent Fund Dividend (PFD) program whereby every Alaskan shares in the annual tax revenue generated by oil production. Last year, this dividend was over $1,700 per person – easy money available to creditors through attachment. No Alaskan who is eligible for the PFD is truly judgment proof. Creditors capitalize on this by preserving minimum debt balances that accumulate interest and fees throughout the year. Come PFD time creditors attach and garnish, yet never quite pay off the debt. Low and moderate income borrowers are trapped in this cycle year after year, never being able to get out from under debt. Creditors are becoming more aggressive in using the PFD: between 1998 and 1999, attachments by creditors increased from 44,078 to 59,901.  See Permanent Fund Dividend Annual Reports from 1998 (at 30) and 1999 (at 35). The Protestants are currently conducting a study of Norwest and Northland’s PFD attachment practices, with particular focus on Norwest cases from 1998 and 1999.

   Norwest Financial’s most recent SEC Form 10-K, filed on March 15, 2000, inter alia discloses that it has six “consumer finance branch offices” in Alaska, and that Alaska accounts for 1.0% of Norwest Financial’s receivables. Given Alaska’s population (619,500, according to July 1999 estimates from the U.S. Census Bureau), this is a significant market penetration (New Jersey, for example, with 8,143,412 residents as of July 1999, also only accounts for 1.0% of Norwest Financial’s receivables).

   Given Norwest Financial’s market penetration in Alaska markets, and given NBA’s ownership of one of Norwest Financial’s competitors, Northland (which is listed as a subprime lender in Randall M. Scheessele, 1998 HMDA Highlights, U.S. Department of Housing and Urban Development, Housing Finance Working Paper Series HF-009, 1999, Table D5b), the Protestants are concerned with the presumptive anticompetitive and anti-consumer effect of this proposed combination, in the relevant product market. The merger should be denied on these antitrust grounds, as well.

    Annexed hereto is a sworn affidavit by Diane F. Miller, an ICP member who is a customer of both National Bank of Alaska and of Wells Fargo’s Norwest Mortgage subsidiary, who would be harmed by this anticompetitive proposed combination. The merger should be reviewed in not only the consumer finance product market, but also in the (separate) mortgage product market. In the entire state of Alaska in 1998, NBA, with 5,725 loans, had a 22.92% market share. Norwest Mortgage, with 1,491 loans, had a 5.97% market share. NBA’s affiliate Northland Mortgage, with 1,056 loans, had a 4.23% market share -- combined, that’s an anticompetitive 33.12% market share; the nearest competitor would be below 10% market share. Also note that these figures are for the entire state -- anticompetitive concentrations are even worse, in the actual geographic markets in which the FRB must review this merger, particularly in southeast Alaska. Again, the merger should be denied on these antitrust grounds, as well.

   The Norwest Financial Form 10-K also reports its purchase, effective May 4, 1995, of another subprime lender, Island Finance. ICP became concerned when Island Finance opened a storefront lending operation in the heavily-minority South Bronx, and charged borrowers, without regard to their credit history, 25% interest, right up to the New York State usury cap. Soon thereafter, Wells Fargo abruptly closed down this office, and left a flyer on the storefront gate, directly customers to travel to another county (Queens) to make their payments. Question: THIS is the “high level of personal service” claimed by Mr. Stroup’s September 30, 1998 letter to the FRS? The Protestants think not. Rather, this reflects the predatory activity of Wells Fargo and its chain of subprime lenders, which includes the fifteenth largest retail subprime lender in the nation, Norwest Mortgage/Directors Acceptance (see National Mortgage News, April 10, 2000, Pg. 28).

   Wells Fargo’s involvement in predatory lending is not confined, however, to such storefront operations -- it extends to formal corporate relationships with some of the worst (and most sued) predatory lenders, from Delta Funding to First Alliance. In order: Norwest Bank Minnesota, N.A. is listed, in SEC filings, as having a relationship with Delta Funding Home Equity Loan Trusts 99-2 and 99-3 -- by the time of these issuances (and Wells Fargo decisions to participate), not only had the New York Times run a detailed account of problems, including predatory pricing and apparent discrimination, at Delta -- the NYS Attorney General had openly accused Delta of race discrimination, in violation of the federal Equal Credit Opportunity Act.  See, e.g., Bureau of National Affairs, June 24, 1999:

WASHINGTON (BNA) -- Delta Funding, a Woodbury, N.Y., mortgage lender, has settled claims of biased and predatory lending by agreeing to pay $ 6 million to alleged victims, NewYork Attorney General Eliot Spitzer announced June 23, calling the case "something that we hope will be a model for future actions."

According to a statement by Spitzer, Long Island-based Delta Funding has also agreed to allow aneutral party to monitor its lending practices for the next three years. In a teleconference with reporters, Spitzer and officials in the state civil rights bureau that handledthe case said the settlement averts what would have been a lawsuit against Delta in federal court.  Among other claims, one official said the state would have alleged violations of the Equal Credit Opportunity Act, found at 15 U.S.C. 1691-1691f. The ECOA prohibits discrimination in all lending, including housing loans.

Spitzer and other officials charged that Delta made over 1,000 "high interest, illegal loans tolow-income, minority residents in Brooklyn and Queens over the past three years." ...

Delta Funding was in the news earlier this year in connection with Deutsche Bank's acquisition of Bankers Trust Co. The Bronx-based Inner City Press/Community on the Move urged the Federal Reserve Board to turn down the deal, arguing among other points that Bankers Trust had business relationships with Delta, which Inner City Press at that time accused of "predatory lending" practices (72 BBR 292, 2/15/99).        

     See also, “U.S. Cites Abuses by Subprime Lender Delta Funding,” Reuters newswire, March 30, 2000, quoting the Director of the FTC’s Bureau of Consumer Protection that “Delta targeted these low income homeowners for high monthly payments, turning the American dream of homeownership into a nightmare,” and reporting that the Justice Department “alleged in the federal suit that the company had deliberately charged black women more for loans than similarly situated white men.”

    Despite all this, Norwest Bank Minnesota N.A. continued, and continues, to do business with Delta, and to make money off these predatory (and, according to the NYS Attorney General, discriminatory) loans.

   This is not an isolated occurrence at Wells / Norwest. Norwest Bank Minnesota, N.A. is listed in SEC filings are doing business with First Alliance (the subject of the New York Times’ March 15, 2000 expose), in connection with (at least) First Alliance Mortgage Loan Trusts 99-1, 99-2, 99-3, and 99-4. We direct the FRB to the detailed description of First Alliance’s predatory practices, as well as of the litigation, including by state attorneys general, that was pending against First Alliance at the time(s) Wells / Norwest decided to participate in, and make money from, these loans.

     The Protestants also direct the FRB to BankRate.com’s study of predatory practices by bank-affiliated subprime lenders (including “Wells Fargo’s Norwest Financial subsidiary”), at <http://www.bankrate.com/brm/news/mtg/20000224.asp>...

    Wells Fargo’s widespread and multi-faceted involvement in predatory lending must be closely inquired into in this proceeding, particularly in light of both the FRB Chairman’s March 22, 2000 statements (quoted supra) and Governor Gramlich’s April 14, 2000 speech in Syracuse, New York (justifying the FRB’s lack of action on the issue of predatory lending by noting that only a third of the 239 HUD-identified subprime lenders are bank affiliates). Governor Gramlich stated:

“HUD compiles an annual list of the subprime lenders that report data under the Home Mortgage Disclosure Act (HMDA). For 1998, this list showed 239 subprime lenders, of which 168 were regulated only by the Federal Trade Commission (FTC). Thirty-six of these institutions were banks or subsidiaries of banks and savings and loans that were regulated, and the remaining thirty-five were banks or subsidiaries of bank holding companies, where the holding company was regulated but the subsidiary operated with some freedom from the holding company and its regulator.”

     ICP contends that Governor Gramlich’s presentation is misleading, including in a way relevant to this proceeding, in which the FRB must scrutinize Wells Fargo and its subsidiaries, for CRA, managerial resources, and fair lending. The HUD study that Governor Gramlich cited (the above-referenced 1998 HMDA Highlights, HUD Housing Finance Working Paper Series HF-009, 1999) makes clear that the list of 239 lenders includes only those HMDA-reporters which “specialize” (or are limited to) subprime lending. The report, in the introduction to the list Governor Gramlich referred to, says that “since HMDA does not identify... subprime loans, we were unable to separate out the... subprime loans of lenders that do not specialize in those loans. For example... Norwest ha[s] been active in the subprime market.”

    Norwest Mortgage has a subprime business unit called Directors Acceptance, which National Mortgage News lists as one of the largest retail subprime lenders in the country. But its loans, its HMDA data, are reported mixed in with Norwest Mortgage’s other HMDA data. Norwest Mortgage doesn’t (only) specialize in subprime loans, and so is not including in HUD’s list of 239 subprime lenders. The FRB, since it regulates the bank holding company Wells Fargo, has jurisdiction over Norwest Mortgage and Directors Acceptance. The Fed’s jurisdiction over (and responsibility for) that part of subprime lending that is predatory is larger than Gov. Gramlich present it.

    Gov. Gramlich’s quotation, above, ends by discussing “the remaining thirty-five were banks or subsidiaries of bank holding companies, where the holding company was regulated but the subsidiary operated with some freedom from the holding company and its regulator.” What Governor Gramlich didn’t say is that this “freedom” from the regulators is one that the Fed itself has DECIDED to give. The FRB can conduct examinations, including fair lending examinations, of any bank holding company subsidiary, including subprime lenders. In fact, the General Accounting Office, in November 1999 released a report, Large Bank Mergers: Fair Lending Review Could Be Enhanced With Better Coordination (GGD-00-16, Nov. 3, 1999), which urged the Fed to begin doing such exams, of BHC-subsidiary subprime lenders.

    Chairman Greenspan signed a September 20, 1999 letter to the GAO expressing the Fed disagreement with the GAO Report’s recommendation (“that the Board monitor the lending activities of nonbank mortgage subsidiaries of bank holding companies and reconsider [its] policy with respect to routine examination”). Chairman Greenspan stated that “[t]he matter is one that we recently studied at length.” The GAO report, at 14, stated that “[a]ccording to FRB officials, a long-standing FRB policy of not routinely conducting consumer compliance examinations of nonbank subsidiaries was formally adopted in January 1998.” The FRB’s decision not to examine BHC subsidiaries has let off the hook not only the 35 companies (on the HUD list) that Gov. Gramlich referred to, but also the subprime PARTS of other BHC-subsidiary lenders, like Norwest Mortgage / Directors Acceptance. To access the patterns and fairness of this Wells Fargo subprime unit’s lending, the FRB should request data on the loans attributable to Directors Acceptance in 1999 and 1998, in this proceeding. On the current record, this Application could not legitimately be approved.

* * *

    We began by referring to Wells Fargo’s history of service reductions, branch closings, and diminished focus on the local communities in which it buys banks. Having documented extensive fair lending disparities within Wells and its subsidiaries, and Well’s extensive involvement in predatory lending, we conclude this section on this important service reduction / branch closing theme, which has already been voiced in the local press: see, e.g., Anchorage Daily News of January 26, 2000, at 4: “Not only could Wells Fargo cut banking agents, but [Robert] Lawer [a senior vice president at First National Bank of Anchorage] said he wouldn’t be surprised if Wells Fargo closes some NBA branches in remote towns such as Kotzebue.” These concerns are well-founded in Wells Fargo’s previous record of service reductions: see, e.g., The Arizona Republic of April 30, 1999, at E1: “If you bank at Wells Fargo, your favorite branch might be closing this fall. The bank... is closing 35 locations statewide in October...”.

    Las Vegas Review-Journal of February 6, 1999, at 1D: “Wells Fargo also listed 10 locations in Northern Nevada that will close” (in addition to 11 branches in Southern Nevada);

   Albuquerque Tribune, September 3, 1998, at B1 (five branch closings); and

    San Francisco Examiner of April 23, 1996 (“Wells Fargo & Co. will close 259 branches in California this summer and lay off 2,000 more employees”).

    Alaskan communities, particularly low- and moderate-income, Native and rural communities, can ill-afford this Wells Fargo takeover. NBA is the only bank with a branch presence in the four county equivalents of the North Slope, the Northwest Arctic, Bristol Bay and Nome, and is one of only two institutions with a branch presence in the county equivalents of Bethel, Dillingham, Prince of Wales-Outer Ketchikan, Skagway-Hoonah-Angoon, Southest Fairbanks, and Valdez-Cordova. According to the Office of the Comptroller of the Currency’s (the “OCC’s”) CRA performance evaluation, the non-MSA accounts for 67% of the bank’s lending activity by number of loans, 61% of its dollar volume and has 42% of the bank’s deposits, 70% of the bank’s branches and 64% of the ATMs. Sixty four percent of NBA’s total number of home purchase loans and 60% of its total dollar volume of loans are originated in the non-MSA, and the bank is the number one lender of all home mortgage products, with 48% of the market share. It has almost three times the volume of loans as its next largest competitor.

    Wells Fargo would have a stranglehold on rural Alaska; decisions regarding the terms of a single loan can make or break an entire community. As AVI/RuralCAP, based on its extensive experience in rural Alaska, puts it:

[I]t has been customary for NBA to require that some rural Alaska borrowers substantially over collateralize loans... [S]uch over collateralization, sometimes as much as ten times, severely limits the local community’s opportunity to maximize the limited resources available to it.

                                                   --AVI/RuralCAP Protest, at 6.

    The Protestants concur in, and incorporate herein by reference, the April 14, 2000 submission of Alaska Village Initiatives and RuralCAP.

   It seems clear from the OCC’s most recent CRA exam of NBA that the federal bank regulators have, to date, put little focus on studying or understanding the unique forces at work in the economy of Alaska, particularly of rural Alaska. The OCC divided its analysis of NBA into “Anchorage” and “Non-Anchorage” sections, thereby lumping together loans and performance in Fairbanks with much more rural communities that are not connected to any urban area by Alaska’s road system. Limiting CRA performance evaluations in Alaska to only two assessment areas (“Anchorage” and “Non-Anchorage”) results in superficial examinations, and continuing under-performance and disparities in rural Alaska. For these reasons, it is imperative that the FRB grant the Protestants’, AVI’s and others’ requests for a public meeting on this proposal, the take-over of Alaska’s largest bank (in many Alaskan communities, the ONLY bank) by Wells Fargo, given the issues in Wells Fargo’s record analyzed above.

    On the current record, Wells Fargo’s application to acquire National Bancorp of Alaska could not legitimately be approved.

* * *

   As discussed above, Norwest Financial and Norwest Mortgage are already active in Alaska. The current performance of these entities, in particular Norwest Mortgage, in the state does not bode well for minorities.

   Norwest Mortgage’s HMDA data refutes any argument that Wells/Norwest will not be a discriminatory lender in Alaska – it already is. In 1998, in the Anchorage MSA, of the 113 conventional home purchase loans Norwest originated, not one went to an African American or Alaska Native. Whereas, the Anchorage aggregate shows that 80 of the 2,666 conventional home purchase loans went to Natives, and 36 went to African Americans.

   Low and moderate income people and geographies in the Anchorage MSA fared badly with Norwest as well. Low income applicants in Anchorage experienced a 40% denial rate at Norwest, compared to an industry aggregate denial rate of 27.68%. Moderate income people were denied by Norwest 25% of the time, compared to an aggregate denial rate of 15.66%. However, middle and upper income applicants enjoyed the low rate of 6.6%.In 1998, Norwest made only 1 conventional loan in a low-income geography and only 5 in moderate income geographies, compared to 107 loans in middle and upper income geographies. Norwest’s investment in LMI areas was less than half the industry aggregate for investment in the same areas.

    Norwest’s 1998 non-MSA HMDA data reports a similar pattern of lending only to whites, yet the aggregate market consistently lends to Natives.

   In the Bethel Census District, where 86.9% of the population is Native, 48 conventional home purchase loans were originated overall, 11 went to Alaska Natives. Norwest made only one loan – to a white applicant for refinancing.

   In the Bristol Bay Census District, where 41.7% of the population is Native, 5 conventional home purchase loans were originated overall, one of which went to a Native family. Norwest made only one loan – to a white applicant for refinancing.

   In the Fairbanks North Star Census District, where 7.2% of the population is Native, 417 conventional home purchase loans were originated overall, with 15 to Natives. Not one of the 6 conventional home purchase loans originated by Norwest went to an Alaska Native.

   In the Kenai Census District, where 7.5% of the population is Native, 348 conventional home purchase loans were originated overall, with 8 going to Natives. Again, not one of the 11 conventional home purchase loans originated by Norwest went to an Alaska Native.

    In the Mat-Su Census District, where 5.6% of the population is Native, 488 conventional home purchase loans were originated overall, with 17 going to Natives. Every single one of the 20 conventional home purchase loans originated by Norwest went to whites.

    In the Nome Census District, where 80.8% of the population is Native, 21 conventional home purchase loans were originated overall, with three going to Natives. Norwest made only one loan – to a white applicant for refinancing.

   In the North Slope Census District, where 56.2% of the population is Native, 31 conventional home purchase loans were originated overall, with 7 to Natives. Norwest granted an FHA loan to a white applicant.

    In the Northwest Arctic Census District, where 87.1% of the population is Native, 11 conventional home purchase loans were originated overall, with 6 to Natives. Norwest made one loan – to a white applicant.

    In the Prince of Wales-Outer Ketchilan Census District, where 43.8% of the population is Native, 23 conventional home purchase loans were originated overall, with 4 going to Natives. Neither of Norwest’s two loans went to an Alaska Native.

   In the Valdez Census District, where 14.4% of the population is Native, 114 conventional home purchase loans were originated overall, with 4 going to Natives. Once again, Norwest only loaned to whites.

   The Protestants contend that Norwest Mortgage’s consistent exclusion of Alaska Natives from conventional home mortgage products make out a presumptive fair lending law violation, and the Protestants call on the FRB to make the required referral to the U.S. Department of Justice. On the current record, this proposed merger should be denied.

    NBA’s record is also relevant in this proceeding.

     NBA dominates in providing financial services in Alaska, holding 45.18% of all deposits in FDIC insured institutions operating in Alaska. The bank provides 25% of the small business lending, by dollar volume, in the state, as of 1998. This market position is even more pronounced in those areas where NBA is the only bank: in Bristol Bay, NBA provides 38% of the money lent for small business; in Nome, it provides 70% of the money lent; in the North Slope 78%, and in the Northwest Arctic an unbelievable 96%. Even in those communities where NBA is one of only two banks with branches, it is solely responsible for much of the money lent: in Bethel, it lends 46% of the cash; in Dillingham, nearly 78%; in Prince of Wales-Outer Ketchikan, nearly 70%; in Skagway-Hoonah-Angoon, 65%; in Southeast Fairbanks, 50%; and in Valdez-Cordova, 45%. However, urban areas such as the Fairbanks North Star Borough only look to NBA to provide 7.9% of the capital for small business loans. Retrenchment by Wells in rural Alaska threatens to cripple these areas access to credit and economic opportunity.

     NBA’s record in the MSA reveals a higher than average denial rate to low and moderate income people and minorities. This was not picked up in the Fair Lending Review by the OCC since the review explicitly excluded an examination of any minority group other than Native. See discussion below. There is no reasonable explanation for this, since the Anchorage MSA is ethnically and racially diverse: 7.9% are Native, 7.2% are African American, 6.9% are Asian, and 6.3% are Hispanic.

    In the Anchorage MSA in 1998, NBA made 192 conventional home purchase loans to whites and 13 loans to Alaska Natives. Its denial rate for whites was 7.6%, while for Natives it was 26.3%; a NBA’s denial rate 3.46 times higher for Natives than for whites. This compares to an industry aggregate of 6.48% denial rate for whites and 14.8% denial rate for Natives, resulting in a disparity of only 2.28: 1.18 times lower than NBA’s.

    African Americans in the Anchorage MSA faced an even higher disparity in denial rates for conventional home purchase loans by NBA than Natives did. In 1998, NBA made 192 loans to whites and only 3 loans to African Americans. Its denial rate for African Americans was 28.6%, or 3.76 times higher than its 7.6% denial rate for whites. This compares to substantially lower denial rates for African Americans in the industry aggregate of only 11.5%, a disparity between whites of only 1.77.

    Hispanics fared the worst. In 1998, NBA made 192 conventional home purchase loans to whites and 4 loans to Hispanics. NBA denied loans to Hispanics 57.14% of the time, or 7.52 more often than to whites. Again, the disparity between loan denials to Hispanics and whites is significantly lower than NBA’s. The industry as a whole, posted a 6.48% denial rate for whites and 25.7% denial rate for Hispanics, resulting in a 3.97 disparity -- 3.55 times lower than NBA’s.

    Low and moderate income applicants also faced denial rates at NBA that were disproportionate to the aggregate. In the Anchorage MSA, NBA denied low income borrowers seeking conventional home purchase loans 51.51% of the time, compared to the aggregate denial rate of 27.68% Moderate income borrowers fared only slightly better, being denied 25.31% of the time by NBA, compared to 15.66% in the aggregate. Borrowing for properties located in LMI geographies also shows higher than average denial rates for NBA customers as compared to the aggregate.

    Home improvement lending patterns are no better. In 1998, in the Anchorage MSA, low income borrowers seeking home improvement loans had less than 33% chance of getting a loan with NBA, whereas they had better than a 52% chance in the aggregate. Overall, with NBA, LMI borrowers faced a 50% denial rate compared to MUI borrowers who faced a 19.03% denial rate.

    Most disturbing however, is that the outreach and services of Northland Mortgage, a subsidiary of National Bancorp, appear targeted at the same well-to-do white population as Norwest Mortgage. In the Anchorage MSA in 1998, Northland made not one conventional home loan to an Alaska Native, African American or Hispanic.

    Absent a takeover, it is possible that NBA, as an Alaska-owned bank, would address its shortcomings with the community. However, given Wells Fargo’s track record, it does not seem realistic to assume it would shore up these shortcomings. In conjunction with its conduct, Wells Fargo’s takeover of NBA causes grave concern.

    As noted above, NBA dominates banking outside the MSA, an area covering everywhere but Anchorage. Branch closings and service reductions would devastate, and in some instances, eliminate, the economies of large portions of the non-MSA. Based on Wells Fargo’s record, the Protestants reasonably conclude that should the merger be approved, branch closings will ensue. The merger should be denied.

    Even the OCC, in its (cursory) most recent CRA exam, understood the significance of the non-MSA when it wrote, “NBA’s overall performance is largely predicated upon its performance in the rural non-MSA portion of the assessment area outside the Anchorage MSA.” 1999 Performance Evaluation at 8. However, for some bizarre reason, the OCC accepted a single consolidated non-Anchorage, non-MSA assessment area.

   Alaska is comprised of 27 census areas: Anchorage, covering 1,698 sq uare miles is one, and non-Anchorage, covering 568,676 square miles, are the other twenty-six. Contrary to the suggestion in the 1999 Performance Evaluation, the 26 non-Anchorage census areas are not devoid of life. Rather each of these 26 areas has a discrete culture and economy. Packing them into one assessment area is inappropriate. Not only do the poverty, wage rates and racial compositions in each area vary widely, but also the local economies vary independently. Assessing all of Alaska except Anchorage as one area obscures any meaningful scrutiny of the credit and service needs of the depositors and the bank’s conformance with CRA. Community Reinvestment Act means invest in the community from which deposits are taken: Barrow and Ketchikan (located off of the road system), which are separated by more than a thousand miles cannot, under any legitimate analysis, be considered the same community. Yet, because these might be small towns by lower 48 standards, that is precisely what the OCC would have us believe in its evaluation.

   Some examples of the diversity within the non-MSA:

   In the Bristol Bay Borough (where NBA is the only institution with a branch presence), located on the shores of one of the world’s best salmon fisheries, only four percent of the population is below the poverty line, while the Wade Hampton area, with undeveloped business opportunity (perhaps because there is no bank branch in the area), has a poverty rate of 38.9%.

    The North Slope Borough (where NBA is again the only institution with a branch presence), which is home to most of Alaska’s oil reserves and produces nearly 20% of America’s oil, relies almost exclusively on tax revenues from oil. Over $40,000 per resident in oil tax revenues are generated annually, and nearly as much is spent in Borough employment and services to its communities. This wealth, which fluctuates in relation to the production rates and price of oil, is reflected in a poverty rate of only 4.3%.

    The Northwest Arctic Borough (where NBA is again the only institution with a branch presence), is an area adjoining the North Slope. It gleans no benefit from its oil-rich neighbor. The Inupiat Eskimos, who comprise nearly 85% of the population, have lived here for about 10,000 years. While subsistence activities are an integral part of the lifestyle and caribou, whale, seal and fish are important subsistence foods, government, mining, health care, transportation, services and construction contribute significantly to the local economy. In fact, the Red Dog Mine, north of Kotzebue, is the largest producer of zinc concentrate in the world and provides 370 direct year-round jobs and over a quarter of the borough's wage and salary payroll. Opportunities for small business development in this region exist, but only if bank loans are accessible.

    The Fairbanks North Star Borough, based in the city of Fairbanks, is the second-largest population center in the state with 83,773 people. Five banks have branches in the region, and 17 lenders are active. Fairbanks is second only to Anchorage in the number and dollar amount of small business loans made. Only 45 minutes by air from Anchorage and four hours from Seattle, it is an urban area with a diverse economy and is home to the leading university in the State of Alaska. City, Borough, State and federal government agencies, including the military, provide nearly half of the employment in the Borough. Eielson Air Force Base, the Borough School District and the University of Alaska Fairbanks are the primary public employers. Retail services, tourism, transportation, medical, and other services are the primary private sector activities. Although the Koyukon Athabascans have lived in this area for thousands of years, today only 7.2% of the population are Alaska Natives. This compares to Anchorage, where 7.9% of the population is Native. Fairbanks’ poverty rate of 8% is also lower than Anchorage’s rate of 8.7%.

   Under the one non-Anchorage assessment area principle, the bank is getting credit for activities in “rural” Alaska when it operates in Fairbanks, which is properly treated as an urban area. This configuration is unacceptable and guts the purpose of CRA.

    This consolidated assessment area creates an even more troubling evaluative impasse when considering Fair Housing implications. It is impossible to determine by review of the CRA Evaluation whether an institution is violating the Fair Housing Act when the lending performance is measured against the 26 combined census areas, with a combined minority rate of 26.1%, as opposed to a individual district rates that range across the board: Wade Hampton is 92.7% minority, Bethel is 88.1% minority, Juneau is 20.4%, and the Matanuska-Sustina Borough, the whitest area of Alaska, is only 7.3% minority.

     On this issue, the Fair Lending Review is baffling. The review explicitly excluded an examination of any minority group other than Native, and no mention is made whether review was in the MSA or out. As discussed above, in the MSA, African Americans and Hispanics experience disproportionate denial rates to Natives. At the very minimum, a CRA exam must include a meaningful Fair Lending Review. In this case, none occurred....

      For the reasons set forth above, the FRB should schedule and hold a public hearing on this Application, and, on the current record, the FRB must deny the Application.

     NOTE:  For or with more information, contact us.  This will be updated; stay tuned...

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