Wells Fargo fined $1B for mortgage, auto lending abuses

Wells Fargo fined $1B for mortgage, auto lending abuses

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April 20, 2018

Ken Sweet


Wells Fargo will pay $1 billion to federal regulators to settle charges tied to misconduct at its mortgage and auto lending business, the latest punishment levied against the banking giant for widespread customer abuses.



In a settlement announced Friday, Wells will pay $500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net $500 million to the Consumer Financial Protection Bureau. The fine is the largest ever imposed by the CFPB and its first since the Trump administration took control of the bureau in late November.



Starting in September 2016, Wells has admitted to a number of abusive practices across multiple parts of its business that duped consumers out of millions of dollars. Regulators, in turn, have fined Wells several times and put unprecedented restrictions on its ability to do business, including forcing the bank to replace directors on its board. Even President Trump, whose administration has been keenly focused on paring back financial regulations, has called out Wells for its "bad acts."


In Friday's announcement, the CFPB and the OCC penalized Wells for improperly charging fees to borrowers who wanted to lock in an interest rate on a pending mortgage loan and for sticking auto loan customers with insurance policies they didn't want or need. The bank admitted that tens of thousands of customers who could not afford the combined auto loan and extra insurance payment fell behind on their payments and had their cars repossessed.



These abuses are separate from Wells Fargo's well-known sales practices scandal, where employees opened as many as 3.5 million bank and credit card accounts without getting customers' authorization. The account scandal torpedoed Wells Fargo's reputation as the nation's best-run bank.


In that case, Wells Fargo paid a combined $187 million in fines and penalties to federal regulators, including the CFPB, and the Los Angeles City Attorney's office, and the company's then-CEO John Stumpf stepped down after being bashed by politicians on both side of the aisle.


Even with the latest settlement, Wells Fargo isn't in the clear. Its wealth management business is reportedly under investigation for improprieties similar to those that impacted its consumer bank. And the Department of Justice is investigating the bank's currency trading business.


The $500 million paid to the Comptroller of the Currency will go directly to the U.S. Treasury, according to the order. The $500 million paid to the CFPB will go into the bureau's civil penalties fund, which is used to help consumers who might have been harmed in other cases. Wells has previously said it began reimbursing auto loan and mortgage customers last year.

The settlement imposes further restrictions on Wells Fargo's business, a sign that regulators have lost patience with the bank's promises to turn itself around. Wells will need to come up with a risk management plan to be approved by bank regulators, and get approval from bank regulators before hiring senior employees. The OCC said in a statement that one reason for the size of the fine against Wells was "the bank's failure to correct the deficiencies and violations in a timely manner."

The $500 million fine matches the largest fine ever handed out by the Comptroller of the Currency against HSBC in 2012.
The Federal Reserve cracked down on Wells earlier this year by restricting it from growing larger than the $1.95 trillion in assets that it held at the time and requiring the bank to replace several directors on its board. The Federal Reserve cited "widespread abuses" for taking such an action.


"While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency," said Wells Fargo CEO Tim Sloan in a statement Friday.

The action by the CFPB is notable because the penalty is the first imposed by the bureau under Mick Mulvaney, appointed by President Trump to take over the consumer watchdog agency in late November. The largest fine previously handed down by the CFPB was a $100 million penalty also against Wells Fargo.

While banks have benefited from looser regulations and lower taxes under President Trump, Wells Fargo has been called out specifically by Trump as a bank that needed to be punished for its bad behavior.


"Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!," Trump wrote on Twitter back in December.


The White House said that, outside of his tweet, President Trump was not involved in the Wells Fargo investigation or settlement.


Consumer advocates have been critical of the Trump administration's record since it took over the CFPB. However, advocates were pleased to see Wells Fargo held to account.
"Today's billion dollar fine is an important development and a fitting penalty given the severity of Wells Fargo's fraudulent and abusive practices," said Pamela Banks, senior policy counsel for Consumers Union.


On Friday, Wells Fargo adjusted its previously reported first-quarter earnings to reflect the penalty. The nation's third-largest bank now says it made $4.7 billion in the first 90 days of the year, down from $5.46 billion in the same period a year earlier.




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Wells Fargo's Big Fine Puts Fresh Focus on Power of Trump Tweets

By Jesse Hamilton
April 21, 2018, 12:00 AM EDT

President threatened risk of ‘substantially’ increased penalty
Regulators he appointed came through with $1 billion sanction

For years, Republican lawmakers and regulators have groused about big corporate fines, arguing that they mostly punish blameless shareholders, not the executives who are responsible for misconduct.

Then President Donald Trump tweeted his ire about Wells Fargo & Co. and -- at least in the case of the embattled bank -- the GOP is singing a different tune.

Watchdogs appointed by Trump -- including a conservative former congressman -- announced Friday that Wells Fargo would pay $1 billion to settle allegations that its auto-lending and mortgage businesses abused consumers. The enforcement actions add to pain borne by the bank’s investors, who’ve endured the worst stock performance among the 20 biggest U.S. lenders since it first ran afoul of regulators over its 2016 phony accounts scandal.

Frustration with Wells Fargo is bipartisan, as demonstrated by Trump’s December tweet. The president foreshadowed that fines and penalties against the bank could be “substantially increased.” Trump also signaled a warning to the broader financial industry that there might be more to come: he pledged to dial back regulations, but made clear that punishments would be severe for firms “caught cheating.” The statement followed a news article questioning whether the Consumer Financial Protection Bureau’s new leadership, picked by Trump, would drop an investigation into Wells Fargo.

What transpired appears to break from Republican doctrine, and could remind corporations of the potential consequences of being targeted in a presidential tweet. The CFPB and the Office of the Comptroller of the Currency both imposed $500 million fines on Wells Fargo -- record sanctions for each watchdog. The regulators are independent agencies, which is meant to insulate them from White House influence.

To put the punishments in context: The CFPB’s share is five times as large as its previous record -- a $100 million penalty also against Wells Fargo over the millions of accounts its employees set up without customers’ approval. And Friday’s punishment matches the OCC’s previous record, which cracked down on HSBC Holdings Plc for doing business with sanctioned countries and laundering hundreds of millions of dollars for drug cartels.

Wells Fargo, which didn’t admit or deny the CFPB and OCC’s allegations, is committed to working with the regulators and trying to do right by its customers, Chief Executive Officer Tim Sloan said in a statement.

The CFPB is run by Mick Mulvaney, who does double duty as Trump’s budget director. When Mulvaney represented South Carolina in Congress, he routinely joined other Republicans in bashing the CFPB as too tough on financial firms. He’s pledged to ease the agency’s bite since joining it as acting director in November. Now, he’s responsible for the CFPB’s harshest penalty ever.

In a Bloomberg Television interview, Mulvaney said he didn’t discuss the planned Wells Fargo enforcement action with Trump.

“I was aware of some of his public statements several months back but did not consult with the president on this consent order,” he said. “We preserve the independence of the bureau.”

The OCC is led by Joseph Otting, a Washington outsider who previously worked under Treasury Secretary Steven Mnuchin at a California bank. The OCC relied on its established protocols for assessing the Wells Fargo punishment, said Bryan Hubbard, Otting’s spokesman. The regulator has a complex formula for determining how big any given fine will be. To reach into the hundreds of millions of dollars, an enforcement action has to pool together several separate incidents of alleged misconduct.

“As an independent regulatory agency, the OCC assessed the facts of the case and determined its penalty using its internal guidelines,” Hubbard said.

However, that same system was used when the OCC fined Wells Fargo $35 million in September 2016 for setting up millions of fake accounts. And none of the agency’s rash of enforcement actions stemming from the 2008 financial crisis -- including punishments against banks over sales of mortgage-backed securities and illegitimate foreclosures -- triggered a $500 million fine.

For other companies, the impact of Trump’s tweets has been much more obvious. On April 2, Amazon.com Inc.’s shares dropped after he used the social media platform to say that its deliveries drive retailers out of business and cost the U.S. Postal Service money.

Mulvaney said Wells Fargo’s “historic violations” warranted the historic response. While $1 billion is a lot of money, it represents about 18 percent of the profit Wells Fargo reported last quarter. So, it may not have a historic impact on earnings.

— With assistance by Elizabeth Dexheimer, and Laura J Keller

https://www.bloomberg.com/news/artic...f-trump-tweets