Wells Fargo, back in the hot seat, could face more than $1 billion in fines

Wells Fargo appears to be back in the crosshairs of federal regulators, with Bloomberg reporting this month that the bank is set to be fined more than $1 billion by the Consumer Financial Protection Bureau to settle investigations into its business practices. .

Details of those investigations were not made available, and the CFPB and Wells Fargo declined to comment on NerdWallet. However, in a late October filing with the Securities and Exchange Commission, Wells Fargo said it was in “resolution discussions” with the CFPB over investigations involving auto loans, consumer deposits and mortgages.

Wells Fargo and the CFPB

This isn’t the start of Wells Fargo’s run-ins with the CFPB and other federal regulators. The bank’s fake account scandal — in which Wells Fargo admitted in 2016 to creating millions of fraudulent accounts for customers without their consent — was followed by a series of CFPB reprimands and other federal actions .

According to the most recent Bloomberg account, the CFPB is pressuring Wells Fargo to pay more than $1 billion to settle multiple investigations into the bank’s “customer abuse.” The report says a deal between the bureau and Wells Fargo “is not imminent.”

Wells Fargo, based in San Francisco, is the third largest bank in the country based on domestic assets, $1.69 trillion as of September 2022, according to the Federal Reserve.

In its third-quarter results, filed with the SEC in October, the bank said $2 billion in operating losses due to “litigations, customer remedies and regulatory matters primarily related to a variety of historical matters” during the quarter, Wells Fargo CEO Charles Scharf said during the company’s earnings call.

Whenever the CFPB takes action against the bank, all the other banks watch to see what happens.

Field expert

Jim Hawkins | Professor of Law, University of Houston Law Center

These losses represented a 31% decline in quarterly net income year over year. In the third quarter, Wells Fargo reported net income of $3.5 billion, according to an SEC filing. That’s down from its net income of $5.1 billion in the third quarter of 2021, according to public filings.

Scharf, who became CEO in 2019, tried to put the bank’s regulatory issues in the rearview mirror. “We still have a lot of work to do to meet our regulatory requirements, and we will likely have setbacks, but I’m confident in our ability to continue closing the remaining gaps over the next few years,” he said. during the first-quarter earnings call in April 2022.

The current action could affect even those who don’t do business with Wells Fargo, observers say. When action is taken against a bank of this size, it has ripple effects throughout the consumer credit industry, says Jim Hawkins, a law professor at the University of Houston Law Center.

“Whenever the CFPB takes action against the bank, all the other banks are watching to see what happens,” Hawkins says. “So it’s always a cost-benefit analysis for these banks, isn’t it? They try to see how likely they are to be penalized and what the penalty will be. … When they see a billion dollar fine, they think, or their lawyers think, ‘Hey, we better keep track of what’s going on so we don’t get that kind of a fine too.’

What is the CFPB?

The Consumer Financial Protection Bureau was launched in 2011 as an independent agency within the Federal Reserve. Its objective: to supervise consumer financial institutions and enforce laws and regulations. Under the Obama administration, Congress created the CFPB in response to the largely unchecked mortgage industry that led to the Great Recession in 2007 and 2008.

Previously, several agencies were responsible for monitoring and enforcing consumer financial market laws. The creation of the CFPB centralized these efforts. Its creation meant that banks and financial institutions had a more dedicated watchdog watching over them, Hawkins says.

“Before the CFPB, all federal regulators focused on the safety and soundness of banking. Their main job was not consumer protection. The CFPB is unique because its sole purpose is to protect consumers, while the FDIC [Federal Deposit Insurance Corp.] and the Federal Reserve are all trying to make sure the banks don’t go bankrupt,” says Hawkins.

Fines and Lawsuits: The Recent History of Wells Fargo

Wells Fargo’s tangles with the CFPB began in September 2016, when the bank admitted that employees created around 2.1 million fake accounts for existing customers without their consent between 2011 and 2015 to meet exorbitant sales targets. . Wells Fargo paid $185 million in fines and penalties in 2016.

Since then, the bank has admitted to or been caught engaging in more fraudulent or unethical activities.

  • March 2017: The bank reaches a $110 million settlement to compensate customers affected by its fake account scandal.

  • August 2017: Wells Fargo says it created up to 3.5 million fraudulent bank accounts between 2009 and 2016.

  • February 2018: The Federal Reserve is taking unprecedented action against Wells Fargo by setting an asset cap for the institution at $1.95 trillion in assets until it “sufficiently improves its governance and controls,” it said. the Fed said in a statement. It was the first time the Fed had imposed a cap on a financial institution’s overall assets. The Fed also forced the bank to remove three board members. As of November 16, 2022, the bank was still below its asset limit.

  • April 2018: Wells Fargo is fined more than $1 billion for unethical conduct in its mortgage and auto business. The CFPB found that the bank was overcharging consumers on mortgage interest rates and unfairly adding insurance policies that added extra costs to borrowers’ auto loans.

  • August 2018: Wells Fargo is paying a $2.1 billion fine for its role in the 2008 housing crisis. The Justice Department found the bank lied to investors about the creditworthiness of mortgages it sold them.

  • February 2020: The Department of Justice and the SEC fine Wells Fargo $3 billion over its fake accounts scandal.

  • September 2021: Wells Fargo is paying $72.6 million to settle Justice Department lawsuits after the agency discovered the bank overcharged hundreds of foreign exchange customers. The bank was giving customers “fake explanations” for the wrong fees it was adding to the cost of exchanging currencies.

Additionally, a March 2022 Bloomberg report found that Wells Fargo was the only major lender to reject more Black mortgage refinance applications than it approved during the 2020 mortgage refinance boom.

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