Wells Fargo has come under scrutiny in an industry-wide probe into mortgage bankers' use of loan discounts, a practice that has raised concerns over potential violations of U.S. fair lending laws. The Consumer Financial Protection Bureau (CFPB) found that black and female borrowers received fewer pricing exceptions than other customers, sparking investigations into whether banks like Wells Fargo discriminated against certain groups or had inadequate oversight of their discount practices.

Wells Fargo, previously a major player in U.S. mortgages, has a history of regulatory issues related to its mortgage operations. In 2012, the bank settled federal claims of charging minorities higher fees and placing them into subprime loans. More recent penalties include a $250 million fine in 2021 for failing to address mortgage business problems and a $3.7 billion fine for consumer abuses, including those related to home loans.

The CFPB's findings regarding pricing exceptions suggest that the long-standing industry practice could easily lead to discrimination against clients. These discounts, typically lowering a customer's APR by 25 to 75 basis points, have been a common tool for securing deals in competitive markets. However, regulators are concerned about their impact on fair lending, as they could contribute to pricing disparities based on race, gender, or other protected categories.

In response to regulatory attention, Wells Fargo hired Winston & Strawn to investigate its mortgage bankers' use of high levels of discounts. The bank also stated that it considers competitor pricing offers when working with customers and has focused on supporting underserved communities, spending over $100 million to help minority families achieve homeownership, including deep mortgage rate discounts.

The CFPB's intensified crackdown on fair lending violations involves multiple lenders, not just Wells Fargo. The agency launched 32 fair lending probes in the last year, more than doubling the investigations since 2020. These investigations are part of a broader effort to ensure compliance with the Equal Credit Opportunity Act (ECOA) and Regulation B, which prohibit discrimination in credit transactions.

Wells Fargo's recent policy changes, which now require hard documentation of competitive bids for pricing exceptions, reflect an industry trend towards more stringent control and documentation of these discounts. These adjustments, while potentially reducing the flexibility loan officers have in offering pricing exceptions, aim to ensure fairer lending practices and compliance with regulatory standards.