Dive Brief:
- Wells Fargo reached a record $3.7 billion settlement with the Consumer Financial Protection Bureau (CFPB) over a slew of consumer abuses related to auto loans, mortgages and deposit accounts, the regulator announced Tuesday.
- As part of the settlement, the bank agreed to pay more than $2 billion to redress consumers, in addition to a $1.7 billion civil penalty for legal violations across several of its largest product lines, the CFPB said.
- Tuesday’s settlement far surpasses the $1 billion the CFPB levied against Wells Fargo in 2018 for overcharging consumers on mortgages and mishandling auto loan insurance. The move also falls in line with CFPB Director Rohit Chopra’s mission to impose stricter penalties on firms the agency has identified as repeat offenders.
Dive Insight:
Tuesday’s CFPB action and other amounts related to litigation and customer remediation are expected to spur an operating loss of $3.5 billion before taxes for 2022’s fourth quarter, Wells Fargo said in a statement.
Wells Fargo’s consumer abuses affected more than 16 million accounts, the CFPB said. The $1.7 billion fine will go to the bureau’s Civil Penalty Fund, where it will be used to provide relief to victims of consumer financial law violations, the CFPB said.
“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” Chopra said in a statement. “The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.”
The bank indicated in October that a fine was forthcoming after it disclosed in a regulatory filing that the CFPB was investigating its automobile lending, consumer-deposit accounts and mortgage lending practices.
The bank set aside $2 billion last quarter to deal with “historical” regulatory matters and said it was in “resolution discussions” with the CFPB. Sources told Bloomberg last month the settlement could top $1 billion.
In a statement Tuesday, Wells Fargo said it is pleased to bring closure to the issues outlined in the settlement, and said the required actions related to the bank’s consumer abuses are “already substantially complete.”
Wells Fargo CEO Charlie Scharf called Tuesday’s settlement an “important milestone” in the bank’s work to transform its operating practices.
“As we have said before, we and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” he said in a statement. “We have made significant progress over the last three years and are a different company today.”
Scharf, in his first earnings call as CEO in January 2020, stressed that his “primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve.”
While Tuesday’s settlement marks another step in Scharf’s efforts to put the bank’s past transgressions behind it, other recent missteps have muddied the bank’s reputation.
Federal prosecutors, as of June, were reportedly investigating whether Wells Fargo violated federal laws by conducting sham job interviews in an effort to meet diversity goals. The probe came less than a month after current and former bank employees told The New York Times that Wells held interviews for nonwhite and female job-seekers for positions that had already been offered to other candidates. The bank paused its policy mandating that half of candidates interviewed for open positions paying $100,000 or more be women, nonwhite or otherwise disadvantaged. It updated that policy in August.
Wells Fargo’s conduct led to billions of dollars in financial harm for thousands of customers, including the loss of vehicles and homes, the CFPB said Tuesday.
“Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank,” the CFPB said. “Wells Fargo also charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts.”
The bureau in 2016 fined the bank $100 million for opening fake consumer accounts. The scandal prompted the Federal Reserve to put the bank under a still-active $1.95 trillion asset cap in 2018.
