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August 03, 2005

Debt consolidation is pushed by large banks

Debt consolidation is often associated with relatively small shops. Debt consolidation industry has been tainted but several large scandals that ended up in lawsuits and some companies were shutdown for good. The most infamous case was with one of the largest debt consolidation/credit counseling outfits, Ameridebt, but there were smaller companies including Franklin Credit Services, FirstPlus Financial Group and others.

Now, according to Bloomberg several customers are accusing Wells Fargo, the fifth largest bank in the country in charging humongous fees and sky high interest rates on home loans.

One lady "said that Wells Fargo had fleeced her family by charging $8,400 in fees and an 11.7 percent interest rate to refinance a $75,300 mortgage." Later same lady stated "Wells refunded about $8,000 in fees".

If that is not bad enough, others accused Wells Fargo's loan officers in pushing mortgage closing costs so high that they "raised the principal more than 10 percent." But wait there is more to that, according to the story, "The company uses telemarketers and direct-mail advertising to reach borrowers. When shoppers use zero-interest, 12-month term financing to buy furniture or home entertainment systems from retailers, Wells often buys those loans wholesale. It then offers those new customers debt-consolidation plans."

All of this is likely the reason why "in the past five years, Wells's earnings per share have jumped 76 percent, to $4.15 in 2004 from 2.36 in 2000, compared with a 17 percent drop in EPS at Bank of America.", no?

 
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