Complaint Review: Wells Fargo Bank

HUD's police are going after Wells Fargo for running a game that allegedly violates RESPA, industry sources told RESPAnews.com this week.

According to our sources, the game under investigation is called Play of the Week, accessible online at www.myplayoftheweek.com for Wells Fargo Home Mortgage players and at www.yourplayoftheweek.com for Joint Venture players.

The official rules on the game site state that the contest is not open to the general public, explaining that the game is open only to legal U.S. residents age 18 or older who are employees of real estate agencies, employees of home building companies, licensed certified public accountants or licensed attorneys, and are employed full-time with such company at the time of entry into the game.

According to the game FAQ, Wells Fargo uses the players' registration information to match them to a Home Mortgage Consultant (HMC), whose name and email address are written on the back of each player's weekly game card. The cards are available through participating HMCs and prizes are hand-delivered to the winners by their HMCs. Game cards are limited to one per eligible person per visit, which is defined as any visit to a participating branch of Wells Fargo Home Mortgage within the same week.

The marketing approach: How to increase deal flow at the branch retail level

Our sources tell us that Wells Fargo hired an outside company, Gage Marketing, to run the game campaign. Gage Marketing's own Web site features a case study of the work they've done for Wells Fargo, which states that the Wells Fargo marketing team had little insight into field marketing activities. This decentralized approach had the potential to short-cut promotion law in a highly regulated industry, to misuse brand standards, and made it difficult to analyze this portion of the marketing budget.

Gage's solution was to develop a centralized program that provides access to proven field marketing tools through a web-based portal, including incentive programs, lead generation kits, client relationship building tools, and seasonal promotions all designed to increase deal flow at the branch retail level. In addition to managing the marketing website, Gage also supports a variety of national promotions including the highly successful Pick of the Pros' program, and handles the production and distribution of all materials.

Since its launch in October 2003, a majority of the sales force has adopted the website to plan and execute promotions, and thousands of orders for promotional materials and tools have been received. Planning for the next national promotion is currently underway, the case study said.

Pick of the Pros game: An earlier version of Play of the Week?

The Pick of the Pros game mentioned in the Gage case study appears to be an earlier Wells Fargo marketing game similar to the Play of the Week game. A January 2005 article in the Wisconsin Post-Crescent highlights a local Realtor with Coldwell Banker The Real Estate Group who won the Pick of the Pros grand prize: a $25,000 home entertainment package, including a 42-inch plasma TV.

The article notes that the winner, along with thousands of other Realtors, CPAs, and homebuilders participated in the contest by logging on to the company's Web site to learn about a new product and then taking a brief quiz. All were then entered into a drawing for the grand prize.

How to make the Play of the Week

The Play of the Week game sounds strikingly similar, consisting of a weekly promotional period where players can enter drawings for prizes once each period by completing a weekly quiz presented on the Web site. Anyone who completes the quiz posted for the applicable weekly period with a score of 100 percent, automatically receives one Instant Win game play and one entry into a Grand Prize random drawing. Anyone who scores less than 100 percent receives one entry into the Grand Prize random drawing.

The Instant Win game consists of a football player/kicker who appears on a virtual "field" with a goal post. By clicking on the football image, the football player will virtually attempt a field goal kick. If the football successfully travels through the uprights of the two goal posts the player will receive a "congratulations" message and will win the prize indicated. Instant Win prizes are randomly seeded in an estimated fixed weekly entry pool for Wells Fargo Home Mortgage and affiliates, and for Wells Fargo Home Mortgage joint venture partners and awarded throughout the Weekly Periods. Whether you are an Instant Winner will be randomly determined, not based on your skill in kicking' the virtual football through the goal, the site states.

Instant Win prizes are organized by promotional period and include things like binoculars, cameras, portable gas grills, sports and travel bags, coolers, VCR/DVD combos, digital sports radios, handheld color TVs and rotisserie/convection ovens.

The Grand Prize drawing is scheduled to occur on Dec. 20, 2005 and is for a 2006 Ford Escape Hybrid, estimated to be worth $25,000.

There are also eight first prizes that consist of a trip for winner and one guest to the 2006 Superbowl, including $1,000 spending money, hotel accommodations and a standard rental car, together worth an estimated $11,000.

The game has apparently been going on since Sept. 5, 2005, and is scheduled to continue through Dec. 5, 2005. The Web site includes an extensive list of Weekly Winners, and our sources tell us that some of Wells Fargo's marketing reps are also passing out cash in some areas of the country to the local real estate agent winners in each office who are playing in the national game.

HUD: Even the opportunity to win something is a RESPA violation

While no HUD investigation can be confirmed at this time, we are told that negotiations are taking place. HUD has, in the past, taken a hard line with companies who use games and contests as referral tools.

Wells Fargo's game Web site does include this disclaimer: No purchase or referral necessary to enter or win. A purchase or referral will not improve your chances of winning.

However, on HUD's RESPA Web site, when asked if a lender could set up a contest for real estate agents under which the agent who provides the lender with the most business will win a trip to Hawaii, HUD responded, No. Under RESPA, the trip itself, and even the opportunity to win the trip, would be a thing of value given in exchange for the referral of business.

That even the opportunity to win the trip statement may prove to be the nail in Wells Fargo's coffin in this case, especially since the contest is very clearly limited to only those in a position to refer business to Wells Fargo.

In our RESPA Q&A section, Grant Mitchell, senior counsel with Lotstein Buckman LLP in Washington D.C. and former RESPA counsel for HUD has previously stated: "HUD has taken the position in the past that the opportunity' to win a prize is potentially a violation of RESPA. So I believe that HUD would take the position that an opportunity to win something of significant value given to persons who are in the position to refer settlement service business would be in violation of Section 8(a) of RESPA."

Past HUD settlement over prize drawings

In February 2004, HUD entered into a settlement agreement with mortgage expert Brian Sacks, branch manager for Integrity Home Funding LLC in Owings Mills, Md., over RESPA violations involving a prize drawing not unlike Wells Fargo's.

According to the settlement agreement, HUD received a complaint about Sacks' Refer a Friend program, under which former clients who sent Sacks referrals were entered into a raffle to receive tickets to sporting events, theatre productions and other prizes. One winner per month was announced in a newsletter distributed by Sacks.

HUD believed Sacks' program violated RESPA Section 8 in two ways: Sacks gave the monthly raffle winners things of value for referring business and he gave non-winners the chance of winning through the opportunity to participate in a contest that awarded things of value, which, in itself is a thing of value, according to HUD.

Sacks also sold materials through his Web site, www.loanofficersuccess.com entitled How to Close More Loans, Make Money and Have a Life, which instructed loan officers to pay referral fees for the referral of settlement service business.

While Sacks did not plead guilty to the alleged violations, the agreement states that he did cooperate with HUD throughout the investigation process.

Sacks discontinued his Refer a Friend program and agreed to revise his Web site materials and remove the sections that advise referral fees. No determination has been made regarding whether How to Close More Loans, Make Money and Have a Better Life and related materials or that selling of such material constitutes a RESPA violation.

In addition, Sacks agreed to pay $1,500 in fines to the U.S. Department of Treasury and to send a written notice on the RESPA violation to anyone who has purchased or received his materials.

Past HUD settlement over awards program

In addition, an August 2003 HUD settlement with InterTrust Mortgage alleged that the company's former participation in an awards program administered by Coldwell Banker Real Estate Corporation violated RESPA Section 8. According to an investigation by HUD, InterTrust contributed to a general pool of funds from which it held a drawing for Coldwell's agents and paid the winning agent $3,750. InterTrust, although denying any wrongdoing, was ordered to pay HUD $3,750 and agreed not to participate in any real estate broker's awards programs.

While these two examples do not mirror Wells Fargo's game exactly, they do provide pertinent examples of how HUD has dealt with prize drawings and contests in the past, and perhaps give an idea of what their response to Wells Fargo's games might be.

RESPA class action suit filed against Wells Fargo over Play of the Week' game

On Oct. 14, a new class action lawsuit was filed against Wells Fargo in Miami-Dade County Court, 11th Judicial Circuit, alleging RESPA violations in connection with the mortgage company's Play of the Week game, as well as an earlier version of the game called Pick of the Pros.

Also on Oct. 14, RESPAnews.com reported that HUD was allegedly investigating the game for possible RESPA violations, as the game is only open to employees of real estate agencies, home builders, accountants and licensed attorneys working with such companies. Although the company provides a disclaimer on the site which notes that a referral will not improve an entrant's chances of winning the game, HUD has held in the past that even offering a provider of business the opportunity to win a prize is a violation of RESPA.

For more information on the game and reported HUD investigation, see related story: Exclusive: RESPA police reportedly investigate Wells Fargo for Play of the Week' game.

Details of the case

The RESPA class action case, brought by plaintiffs Diego and Donna Gomez, takes things a step further by alleging that the game was set up in order to provide things of value to such individuals and entities in order to obtain and/or in exchange for obtaining loans from the plaintiff and other members of the class.

The complaint continues, As a result of providing such monetary value to these referral entities, the fees charged to the plaintiff and the class were higher than they should have been in order to offset such monetary prizes. Additionally, the defendant could have lowered such fees to the plaintiff and the class members rather than provide such monies to referral sources to obtain the business. As such, the defendant chose to pass through monies to its referral sources rather than use such monies to maintain lower fees that the plaintiff and the class were required to pay.

The suit alleges that Wells Fargo's actions violated Section 8(a) of RESPA which provides that no person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

The complaint states that Wells Fargo is clearly in violation of this provision such that it gave' a kickback and/or thing of value to the members of the contest throughout the United States which was incident to a real estate settlement service involving a federally related mortgage for the purposes of obtaining certain referral business from such contest winners and/or participants.

The plaintiffs and the class seek treble damages for all fees that they allege were artificially inflated and have requested a jury trial.

The case is currently seeking class certification for all homebuyers who obtained mortgages through Wells Fargo within the past year, both in Florida and throughout the U.S.

The plaintiffs' attorney, Jeremy Friedman of Downs Brill Whitehead, said that they are particularly interested in plaintiffs who not only got their financing through Wells Fargo, but whose transactions were facilitated by contestants who participated in the game. The game's Web site, www.myplayoftheweek.com, gives an extensive list of weekly winners of the game.

Friedman said about the case that what it essentially boils down to is a gigantic national referral violation.

He also commented on the company who was hired to run the campaign, Gage Marketing, and said that the whole purpose of Gage is to improve business referrals to their clients. And in Wells Fargo's case, the campaign was designed to increase deal flow at the retail branch level, according to Gage.

The underlying basis and reason we think consumers are being hurt by this is that Wells Fargo is spending hundreds of thousands of dollars, probably millions if you add it all up, on these games, and that's money that they could have spent on helping consumers by cutting their costs. But instead they are spending it on marketing to their business referrers and using Gage, who is one of the most expensive marketing companies, he said.

Friedman also noted that, although the lawsuit is only being brought on the behalf of consumers who are allegedly being hurt by the games, Wells Fargo's marketing tactics are hurting businesses as well.

It's not fair to the smaller businesses who are trying to market themselves in compliance with RESPA, he said, noting it's difficult for companies to compete when the playing field isn't level.

Wells Fargo goes missing

On a related note, after the publication of our exclusive report on Oct. 14, Gage Marketing took the case study they did on their marketing strategy for Wells Fargo off of their Web site, and have in fact removed Wells Fargo's name and logo from their client lists. However, you can see a cached version of the case study before it was removed from their site here.

And as you'll note from this cached version of their client list, until very recently, Wells Fargo was at the top.

At this time, we don't have a definitive reason as to why Gage excised the Wells Fargo information from their site.

In response to the HUD allegations and lawsuit, Wells Fargo Communications Manager Kevin Waetke said that to date, Wells Fargo has not been contacted about a class action lawsuit, nor to its knowledge is it being investigated by HUD regarding the Play of the Week program. No changes have been made to this promotion.

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Florida Realtors, title agents targeted over Wells Fargo Play of the Week' game

A new twist has cropped up in the RESPA class action case against Wells Fargo over their Play of the Week game (www.myplayoftheweek.com).

On Oct. 14, we reported that HUD was allegedly investigating the game for possible RESPA violations, as the game is only open to employees of real estate agencies, home builders, accountants and licensed attorneys working with such companies.

Also on Oct. 14, a class action lawsuit was filed against Wells Fargo in Miami-Dade County Court, 11th Judicial Circuit, alleging RESPA violations in connection with the game.

Now, the plaintiff's attorney in that case, Jeremy Friedman of Downs Brill Whitehead & Sage, is running an ad in all of the major Florida newspapers looking for additional plaintiffs to add to the suit.

The ad states, Attention Home Buyers: If you have purchased a home within the last year, have a mortgage with Wells Fargo Bank and have utilized any of the following real estate agents or companies, you may be entitled to certain compensation.

The ad goes on to list all of the Florida-based real estate, title and homebuilder agents who appeared on the list of prize winners on Wells Fargo's Play of the Week Web site: http://www.myplayoftheweek.com/winnerslist.aspx

The agents' names are listed with their companies, which include:

ACR Title Group, Tampa

Adams Homes, Port St. Lucie

Century 21 JB Novelli, Bonita Springs

Century 21 Napolitano & Scaggs Realty, Deltona

Coldwell Banker Residential Real Estate, Davie

Dolphin Realty, Apollo Beach

Florida Sun & Surf Realty Group, Port St. Lucie

Keller Williams Realty, Tallahassee

Ocean Properties, New Smyrna Beach

Paradise Properties, Satellite Beach

Realty Associates, Boca Raton

RE/MAX ACR Elite Group, Inc., Tampa

RE/MAX Mutual Realty, Clearwater

RE/MAX Properties, Sarasota

Resortquest Real Estate, Destin

Suarez Housing, Apollo Beach

Tafford Realty Co., Cocoa

Taylor Woodrow, Bonita Springs

The Trio Group, Bunnell

Westfield Homes, Tampa

Although the company provides a disclaimer on the site which notes that a referral will not improve an entrant's chances of winning the game, HUD has held in the past that even offering a provider of business the opportunity to win a prize is a violation of RESPA.

The RESPA class action case, brought by plaintiffs Diego and Donna Gomez, alleges that the game was set up in order to provide things of value to such individuals and entities in order to obtain and/or in exchange for obtaining loans from the plaintiff and other members of the class.

The complaint continues, As a result of providing such monetary value to these referral entities, the fees charged to the plaintiff and the class were higher than they should have been in order to offset such monetary prizes. Additionally, the defendant could have lowered such fees to the plaintiff and the class members rather than provide such monies to referral sources to obtain the business. As such, the defendant chose to pass through monies to its referral sources rather than use such monies to maintain lower fees that the plaintiff and the class were required to pay.

The suit alleges that Wells Fargo's actions violated Section 8(a) of RESPA which provides that no person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

The complaint states that Wells Fargo is clearly in violation of this provision such that it gave' a kickback and/or thing of value to the members of the contest throughout the United States which was incident to a real estate settlement service involving a federally related mortgage for the purposes of obtaining certain referral business from such contest winners and/or participants.

We are following up on this story and will bring you more information as it becomes available.

Ralph
Miami, Florida
U.S.A.

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