DENVER (Legal Newsline) - Colorado Attorney General John Suthers announced on Wednesday that Colorado will receive $900,000 from a financial institution's banks that allegedly practiced deceptive lending practices as part of a $23.7 million multi-state settlement.
The suit alleged that World Savings and Wachovia misrepresented and failed to disclose material terms to consumers who received Pick-a-Pay loans.
The banks allegedly emphasized a low teaser rate, which ranged from 1.5 percent to 2.95 percent, which only lasted for one month. The real interest rate was between 5 percent to 6.75 percent and was adjusted each month, the AGs said.
The suit also alleged that the banks failed to inform borrowers that any unpaid interest would be added to the loan's principal balance and that loans came with a prepayment penalty.
Wells Fargo, which is not alleged to have engaged in deceptive advertising or lending practices in connection with these loans, is responsible for the conduct of the two companies as it acquired both banks in 2008.
"Reckless lending practices and deceptive advertising of variable-rate loans played a role in our country¹s foreclosure crisis," Suthers said.
"Although we cannot turn the clock back on the foreclosure crisis, this settlement will at least allow us to repair some of the damage caused by irresponsible and illegal lending practices in Colorado."
The settlement money Colorado receives will be used to pay restitution to those who received the Pick-a-Pay loans who went through foreclosure. The money will also be directed to foreclosure-relief efforts.
Wells Fargo will assist the attorney general's staff in identifying borrowers and reaching out to them to provide restitution. The borrowers will be identified between now and the end of the year.
Eligible borrowers will be contacted after the first of the year.
Wells Fargo has also agreed to provide loan modifications to borrowers that are 60 days or more delinquent or in danger of imminent default prior to June 30, 2013. The company will be handling the modifications directly for Pick-a-Pay borrowers that are behind on their mortgages.
Arizona, Florida, Illinois, Nevada, New Jersey, Texas and Washington also participated in the settlement.