Consumer Protection

LOS ANGELES – Attorney General Edmund G. Brown Jr. announced today that Wells Fargo has agreed to provide loan modifications worth more than $2 billion to thousands of California homeowners with “pick-a-pay” loans and to pay an additional $32 million to thousands of borrowers who lost their homes through foreclosure.

None of the loans were made by Wells Fargo. All were originated by World Savings and Wachovia, banks Wells Fargo acquired.

“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”

The pick-a-pay, or pay option adjustable-rate, mortgage loans allowed borrowers to make payments at various levels. The highest level fully covered the monthly interest and principal due. Another level covered interest only. At the minimum level, payment was insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance.

Ultimately, the loans would reset, increasing the monthly payments dramatically.

Faced with unemployment, dramatic declines in home prices, and the sharp escalation of the monthly payments, thousands of borrowers were unable to meet their mortgage payments.

The settlement with Wells Fargo covers loans made by World Savings Bank, a subsidiary of Golden West Financial Corp., and Wachovia Bank. Wachovia purchased World Savings in 2006, and Wells Fargo then acquired Wachovia in 2008.

Under the settlement, Wells Fargo will offer affordable loan modifications to an estimated 14,900 California borrowers with pick-a-pay loans made by World Savings or Wachovia. Many of the modifications will include significant principal forgiveness. The total value of the modifications mandated by the settlement is projected to be more than $2 billion.

Wells Fargo is also required to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure, plus approximately $1.8 million in costs to the state. Payments to foreclosed homeowners are expected to average more than $2,650.

Wells Fargo has reached settlements over pick-a-pay loans with attorneys general of several other states, including Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

California borrowers eligible for loan modifications should get a notice from Wells Fargo within the next two months. Borrowers who suffered foreclosures should be notified during the first six months of 2011. For further information and updates, check the Attorney General’s website at ag.ca.gov.

A copy of the settlement is attached.

SAN DIEGO – Attorney General Edmund G. Brown Jr. today announced a $13 million settlement with DIRECTV plus restitution for customers who were subjected to the satellite TV company’s misleading sales and marketing practices.

“DIRECTV won customers by offering special deals with hidden costs, and also extended customers’ contracts without telling them,” Brown said. “With this settlement, DIRECTV will reimburse customers and change its sales and advertising practices to comply with the law.”

The settlement by Brown and 48 other state attorneys general was filed today in San Diego Superior Court. It requires DIRECTV to make full restitution to all victims. In addition, the company is required to pay $13.25 million to the 49 states and the District of Columbia in civil penalties and costs, and obey state laws.

DIRECTV, based in El Segundo, has more than 18 million subscribers nationwide with more than one million in California.

The multi-state investigation found the company engaged in practices that misled customers about how much they would be required to pay and what kind of programming they could expect. The investigation established that DIRECTV:

• Extended contracts without customers’ knowledge. When the company serviced faulty DIRECTV equipment, its representative asked customers to sign what appeared to be service documents. Customers later learned that their signatures had extended their contacts for another two years.

• Failed to deliver promised channels. In its promotions, the company promised potential subscribers access to sports channels and local stations, but subscribers discovered that some of the promised programming was not available.

• Change the terms of promotions. The company offered cash-back deals and free trials but did not disclose key details, and some customers ended up paying more than expected. For example, DIRECTV offered a two-year deal at $29.99 a month (compared to a typical charge of $53.99 or $63.99) but did not disclose that the second year was at the regular price.

As part of today’s settlement, DIRECTV agreed to clearly state all costs, services offered, length of contracts and terms of cancellations and refunds.

Brown’s office is reviewing the 1,136 complaints it has received about DIRECTV to determine which customers are entitled to restitution. Complaints about conduct that occurred after January 1, 2007 are eligible for restitution. Californians who believe they were misled by DIRECTV have until June 9 to file a complaint with the Attorney General’s office at http://ag.ca.gov/consumers/general.php.

Copies of the Attorney General’s complaint and settlement judgment announced today are attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. today announced a $67 million multi-state settlement with Bank of America for illegal activity by some of its employees in investing the proceeds of municipal bonds. This activity amounted to bid rigging, price fixing, and other anti-competitive practices that defrauded state agencies, local governments and non-profit groups.

“This settlement means that government agencies facing lower budgets will recover millions of dollars in restitution for money that they were deprived of by some unscrupulous bond-derivative investment advisors,” Brown said.

After an internal investigation, Bank of America voluntarily reported the scheme in 2004 to the federal Department of Justice and applied for the Corporate Leniency Program, which reduces potential criminal liability in exchange for cooperation. Throughout the Attorney General’s investigation, Bank of America cooperated in identifying California-based transactions and victims.

This action is part of a $137 million overall series of settlements agreed to by Bank of America with 20 states and federal agencies, including the Internal Revenue Service and the Securities and Exchange Commission. California agencies and non-profits will receive about $6 million in restitution under today’s multi-state settlement.

The illegal activities date back at least to 1998, and they include rigging bids, compensating losing bidders, submitting courtesy bids, deliberately losing bids and agreeing not to bid. These schemes enriched the financial institutions and brokers at the expense of state agencies, cities, school districts and non-profits, who received lower rates of return on investments or paid higher rates to protect their funds.

The U.S. municipal bond market is large. Some $400 million in new tax-exempt bonds are issued each year, and the total market value of exempt bonds is almost $2.8 trillion. The bonds are an important source of funds for governmental and non-profit agencies. They are used for projects such as mass transit, construction of schools and street repair.

Today’s settlement is one of a string of contemplated actions against other bond brokers and major financial institutions that engaged in similar illegal practices.

The other states joining California in the settlement are Alabama, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.

SAN DIEGO - Attorney General Edmund G. Brown Jr. today announced a $3.3 million settlement with Bayer Healthcare over its “totally unsubstantiated claims” that its One-A-Day men’s multivitamins are able to reduce the risk of prostate cancer.

“By virtue of this settlement,” Brown said, “Bayer has stopped making totally unsubstantiated claims that its One-A-Day multivitamins can reduce men’s risk of developing prostate cancer.”

Brown joined state attorneys general in Oregon and Illinois in this $3.3 million multistate settlement. The State of California will receive more than $1 million for its Consumer Protection Fund. Today’s judgment also prevents Bayer from making claims about its products that are not based on sound and reliable scientific evidence.

Brown’s complaint alleges that Bayer knew, or should have known, that its advertisements made misleading claims about the mineral selenium, which is found in its One-A-Day Men’s Health Formula and One-A-Day Men’s 50+ multivitamins. The ads claimed that “emerging research” suggested selenium may reduce the risk of prostate cancer.

In 2008, Bayer launched its “strike out prostate cancer” campaign that made deceptive claims about the One-A-Day products’ ability to reduce the risk of developing prostate cancer, according to the complaint. As part of the campaign, Bayer entered into a promotional relationship with Major League Baseball in which the company advertised its multivitamins during games and used Major League Baseball graphics and players to promote its One-A-Day products.

But there was broad scientific consensus that selenium did not reduce the risk of prostate cancer, and that assessment was confirmed in October 2008 with the results of a clinical trial funded by the National Institute of Health.

Nevertheless, Bayer continued to use the “emerging research” claim in television and print advertising until June 2009. In addition, the claim remained on the packaging for One-A-Day Men’s Health Formula products that appeared on store shelves until as recently as May 2010.

The Attorney General’s office monitors the conduct of drug and nutritional supplement companies to protect consumers from false and misleading information. In 2009, Brown’s office required Bayer Corporation to stop its deceptive ad campaign for the oral contraceptive, “Yaz,” and to spend $20 million to publicly correct misleading assertions about the product. Bayer claimed the drug could treat symptoms related to premenstrual syndrome (PMS), and acne – claims that were not approved by the Food and Drug Administration. See: http://ag.ca.gov/newsalerts/release.php?id=1677&

A copy of the complaint and the stipulation for entry of judgment submitted to the San Diego County Superior Court today for approval are attached.

SAN FRANCISCO – Attorney General Edmund G. Brown Jr. announced today that California has joined a coalition of 50 attorneys general and dozens of state banking regulators in a multi-state effort to demand that lenders find solutions to serious and potentially widespread problems in the foreclosure process across the country.

“While California continues its own vigorous efforts to ensure that homeowners facing foreclosure are treated fairly and lawfully,” Brown said, “we are now working together with other attorneys general and regulators to seek solutions that reach across state lines to protect all borrowers at risk of losing their homes in this foreclosure crisis.”

On Friday, Brown called on all lenders in California to halt foreclosing on California homes until they can demonstrate that they are complying with state law. Earlier, Brown sent letters to Ally Financial and J.P. Morgan Chase directing them either to prove they are in compliance with state law or else halt foreclosures. His office also has been in discussions with other lenders, including Wells Fargo, One West and Bank of America. Brown’s office will continue its independent efforts to protect homeowners facing foreclosure.

Bank of America announced on Friday that it was temporarily halting foreclosures nationwide.

The multi-state group will review how lenders verify foreclosure documents nationally. The group was formed after several lenders and loan services admitted that officials, dubbed “robo-signers,” had vouched for the accuracy and completeness of foreclosure documents without reviewing them. Such sham verifications may constitute a deceptive and unfair practice or otherwise violate state laws.

Regulators in the states involved, including California, have already started examining whether mortgage servicers have submitted improper affidavits or other foreclosure documents.

Although each state has its own foreclosure laws, all attorneys general and financial regulators have a common goal of making certain that every lender and servicer conduct a good faith review of foreclosure documents, only foreclose on homeowners after confirming all requirements have been met, and obey all state laws.

California law prohibits lenders from recording notices of default on mortgages made between Jan. 1, 2003, and Dec. 31, 2007, unless – with certain exceptions -- the lender contacts or tries diligently to contact the borrower to determine eligibility for loan modification. A notice of default must include a declaration of compliance with California law.

California homeowners who experience problems with foreclosures, or other consumer issues, can file a complaint online with the Attorney General's office at: www.ag.ca.gov/consumers/general.php.

SAN FRANCISCO – Following his office’s negotiations with the state’s top loan servicers and today’s announcement by Bank of America that it is temporarily halting foreclosures nationwide, Attorney General Edmund G. Brown Jr. today called on the state’s other lenders to halt foreclosing on California homes until the banks can demonstrate that they are complying with state law.

"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair and complies with California law,' Brown said. 'Bank of America has taken an important step, and the other major lenders should follow its lead.”

California law prohibits lenders from recording notices of default on mortgages made between January 1, 2003 and December 31, 2007, unless, subject to limited exceptions, the lender contacts or tries diligently to contact the borrower to determine eligibility for a loan modification. A notice of default must include a declaration of compliance with California law.

In the past few weeks, Brown’s office has been in discussions with Bank of America, Ally Financial, JP Morgan Chase, Wells Fargo and OneWest to ascertain whether they are complying with California law. Brown’s office has called on those banks to show they are complying with state law before continuing with foreclosures.

JP Morgan Chase, the nation's third largest loan servicer, Ally Financial and One West have admitted that employees approved and signed foreclosure documents without first fully reviewing the borrowers' loan files. As a result, those borrowers lost their homes based on affidavits the bank never confirmed were accurate.

Ally Financial and JP Morgan have suspended foreclosures in 23 other states that, unlike California, require a court order for foreclosures.

FREMONT -- Attorney General Edmund G. Brown Jr. announced charges today against two “callous con artists” who took thousands of dollars from dozens of struggling Northern California homeowners for foreclosure services never delivered.

“The housing crisis has been devastating for many Californians, and their pain has been sharpened by callous con artists like these,” Brown said. “Their arraignment today serves as a warning to people trying to save their homes from foreclosure that there are fraudulent operators out there who will take their money but do nothing to help.”

Angeline Lisa Lizarrago, 68, of Fremont and Michael Douglas Young, 67, of Los Gatos were scheduled to be arraigned today in Department 502 of the Hayward Hall of Justice on a 23 count complaint for felony fraud and theft they committed at their business, Avemos Financial Group, of Fremont.

If convicted, Lizarrago could face more than 15 years in prison. Young, a licensed real estate broker, faces up to 12 years.

The case was investigated and prosecuted jointly by the Attorney General and the Alameda County District Attorney.

From June 2008 to October 2009, Lizarrago and Young targeted Spanish-speaking homeowners as well as Southeast Asian immigrants, all desperate to save their homes.

People stood in line for hours to get into Avemos’s waiting room, which was decorated with shrines to the Virgin Mary. Clients seeking help typically paid $1,500 initially. Lizarrago, the owner of Avemos, and Young, Avemos’s general manager, promised they would take steps to stop banks from immediately foreclosing on their homes and renegotiate clients’ loans to reflect their homes’ current market value. Lizarrago and Young guaranteed a refund if they were unsuccessful. Many lost their homes in foreclosure and did not receive a refund.

Lizarrago also took advantage of the foreclosure crisis in another way. She told an 89-year-old man and his wife, who wanted to move away from Stockton, that she owned 51 properties, many of which had been foreclosed upon, and she could find them a home in Fremont. She asked for an up-front fee, which she promised to return with interest once the purchase was made. In a series of payments, the couple gave Lizarrago $25,000. She never found them a home, nor returned their money.

The criminal charges against Lizarrago and Young are based on 11 cases of fraud and theft, and prosecutors believe there are 50 more victims who haven’t been identified yet. Anyone with information about the Avemos Financial Group or the defendants should call the Alameda County District Attorney’s Office at 1-877-288-2882.

Lizarrago was moved to Alameda County jail from Chowchilla State Prison, where she was serving a two-year sentence for a prior real estate scam. Young was arrested September 30.

The California Department of Real Estate and the Fremont Police Department assisted in the investigation.

The Attorney General has fought to stop scammers and con artists from taking advantage of people during the housing crisis. He has sought court orders to shut down more than 30 fraudulent foreclosure-relief companies and has brought criminal charges and obtained lengthy prison sentences for dozens of other deceptive loan-modification consultants. For more information on the Attorney General’s action against loan-modification fraud visit: http://ag.ca.gov/loanmod.

LOS ANGELES – Attorney General Edmund G. Brown Jr. has demanded that JP Morgan Chase prove immediately that it is complying with state law or, if it cannot, halt foreclosing on California homes.

“I’m taking this action to further protect California homeowners on the brink of foreclosure,” Brown said, “JP Morgan Chase, like GMAC/Ally Financial, has admitted that its review of key foreclosure documents was a ruse.”

“I’m directing Chase to prove it is following the law before it continues foreclosures in California,” Brown added.

California law prohibits lenders from recording notices of default on mortgages made between January 1, 2003 and December 31, 2007, unless, subject to limited exceptions, the lender contacts or tries diligently to contact the borrower to determine eligibility for a loan modification. A notice of default must include a declaration of compliance with California law.

JP Morgan Chase, the nation’s third largest loan servicer, has admitted that employees signed affidavits in 56,000 foreclosure cases nationwide without first personally reviewing the contents of the borrowers’ loan files. As a result, those borrowers lost their homes based on affidavits the bank never confirmed were accurate.

This practice strongly suggests that any purported verification by JP Morgan Chase that it complied with California law before beginning foreclosures here is also questionable.

JP Morgan has suspended foreclosures in 23 other states that, unlike California, require a court order for foreclosures.

On Sept. 24, Brown sent a similar letter to Ally Financial, Inc., formerly known as GMAC, directing it to prove it is complying with California law or cease foreclosures in California until it can. The Attorney General’s office is in contact with Ally.

Brown’s letter to JP Morgan Chase is attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. today directed Ally Financial, Inc., formerly known as GMAC, to prove immediately that it is complying with state law or, if it cannot, to cease and desist from foreclosing on California homes.

“I’m taking this action to protect California homeowners facing the tragedy of foreclosure,” Brown said. “They are clearly in jeopardy since an Ally Financial official admitted his review of thousands of critical foreclosure documents was really a sham.'

"Prior to resuming foreclosures here, the company must prove that it's following the letter of the law,” Brown added.

California law prohibits lenders from recording notices of default on mortgages made between January 1, 2003 and December 31, 2007, unless, subject to limited exceptions, the lender contacts or tries diligently to contact the borrower to determine eligibility for a loan modification. A notice of default must include a declaration of compliance with California law.

Recent reports indicated that the head of Ally Financial’s document processing team testified he routinely approved and signed foreclosure documents without confirming they were accurate and legally sufficient, as he was required to do. He approved foreclosure cases at such a rapid rate that he was known by consumer advocates as the “super robot signer.”

This admitted misconduct raises serious doubts about whether Ally Financial’s practices provide California borrowers facing foreclosure the protections guaranteed by law. Accordingly, Brown is demanding that Ally Financial, the fourth largest home loan institution in the country, demonstrate its compliance with California law or else halt all foreclosure operations in the state.

Ally Financial earlier this week suspended evictions of homeowners and foreclosure sales in 23 states that, unlike California, have a system that requires a court order for foreclosure. The company has, however, continued its foreclosure operations here and in other states.

In the first six months of 2010, Ally Financial originated $26 billion in home loans, with more than 24 percent of them made in California, and the company reported earnings of $769 million during that period from its large loan-servicing business. Ally Financial services loans on behalf of numerous other companies and investors.

Brown’s letter to Ally Financial is attached.

SACRAMENTO — Attorney General Edmund G. Brown Jr. today announced jail terms for a former DMV employee and two associates for “jeopardizing the safety of thousands” by running a scam in which unlicensed drivers paid up to $500 to acquire a phony driver’s license without taking a DMV driving test.

“This trio of characters allowed wannabe drivers to acquire a California driver’s license without passing a single driving test,” Brown said, “thereby jeopardizing the safety of thousands of Californians by putting ill-prepared drivers on our roads and highways.”

Former DMV employee Rodney Wheatly, 46, of Fairfield and his two co-conspirators, Donald McGowan, 55, and Maricar Bazemore, 37, both of Vacaville, all entered no contest pleas to a single felony charge of unlawful access to a computer system (PC 502(c)).

Wheatly was sentenced to one year in Sacramento County Jail, and the other two defendants were sentenced to six months. Their prosecution was handled by Brown’s office following a DMV undercover investigation. Investigators believe the trio issued about 20 fraudulent driver’s licenses, but they were unable to confirm a precise number.

The investigation was initiated in late 2009 after a concerned citizen called DMV’s Office of Internal Affairs to report a scheme involving the illegal sale of California driver licenses at a Napa DMV field office.

DMV investigators set up an undercover operation in which one of the agents posed as an unlicensed driver with a record of failed driving test attempts. The agent made initial contact with Bazemore over the phone and claimed to be a friend of a friend with an interest in purchasing a license. Bazemore agreed to meet the agent at a Taco Bell in Vacaville, adjacent to the senior citizens’ home where she worked, and told the agent to bring $500 for the license.

At the Taco Bell, the agent and another undercover investigator posing as her boyfriend met with Bazemore and McGowan, who was introduced as the best friend of Wheatly, the DMV employee. Bazemore and McGowan instructed the undercover agents to drive to the Napa DMV field office where Wheatly would process the driver’s license.

Before entering the Napa DMV field office, the agent paid McGowan $300. Inside, Bazemore instructed the agent to complete an application for a driver’s license and directed her to Wheatly’s window where she was told her driver’s license would be mailed to her.

Upon leaving, the agent requested that Bazemore and McGowan provide her with a temporary driver’s license before she paid them the remaining $200. They agreed, and the exchange was made the following week at the same Taco Bell in Vacaville.