Wells Fargo, back in the hot seat, could face more than $1B in fines – NerdWallet

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

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Details were not provided on these inquiries, and the CFPB and Wells Fargo declined to comment to NerdWallet. However, in a late October filing with the Securities and Exchange Commission, Wells Fargo said it is in “resolution discussions” with the CFPB regarding automobile lending, consumer deposit and mortgage lending.

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Wells Fargo and the CFPB

This isn’t the beginning of Wells Fargo’s clashes with the CFPB and other federal regulators. The bank’s fake accounts scandal — in which Wells Fargo admitted in 2016 to creating millions of fraudulent accounts without customers’ consent — was followed by CFPB reprimands and a string of other federal actions.

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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 “mistreatment of customers”. The report added that a settlement between the bureau and Wells Fargo “is not imminent.”

San Francisco-based Wells Fargo is the nation’s third-largest bank by household assets, with $1.69 trillion as of September 2022, according to the Federal Reserve.

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


Every time the CFPB takes action against a bank, all the other banks are watching to see what happens.

experts on the ground

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

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

Scharf, who became CEO in 2019, is trying to put the bank’s regulatory woes in the rearview mirror. He announced the company’s first-quarter earnings call in April 2022.

Observers say the current crackdown could also affect people who don’t bank with Wells Fargo. When action is taken against a bank of that size, it has ramifications in the consumer finance industry, says Jim Hawkins, a law professor at the University of Houston Law Center.

“Every time the CFPB takes action against a 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’re trying to see how likely it is that they’ll be punished and how much they’ll be punished. … When they’re going to get a billion dollars.” 10,000 fine, they think, or their lawyers think, ‘Hey, we better keep an eye on what’s going on so that we don’t even get fined like that.'”

What is CFPB?

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

Previously, several agencies were tasked with monitoring and enforcing laws in the consumer financial market. Creating the CFPB centralized those efforts. Its inception, says Hawkins, meant that there was a more dedicated watchdog to keep tabs on banks and financial institutions.

“Prior to the CFPB, all federal regulators were focused on bank safety and soundness. Their primary job was not consumer protection. The CFPB is unique because its sole focus is to protect consumers, whereas the FDIC [Federal Deposit Insurance Corp.] And the Federal Reserve is all about trying to make sure the banks don’t close,” Hawkins says.

Fines and Legal Actions: Wells Fargo’s Recent History

Wells Fargo’s entanglement with the CFPB began in September 2016, when the bank admitted that employees had created approximately 2.1 million fake accounts for existing customers without their consent between 2011 and 2015 in order to meet ultra-high sales targets. Can go Wells Fargo paid $185 million in fines and penalties in 2016.

Since then, the bank has admitted or been found to have engaged in more fraudulent or unethical activities.

March 2017: The bank reached a $110 million settlement to compensate customers affected by its fake accounts scandal.

August 2017: Wells Fargo clarifies that it created 3.5 million fraudulent bank accounts between 2009 and 2016.

February 2018: The Federal Reserve has taken unprecedented action against Wells Fargo by setting an asset cap for the institution at $1.95 trillion in assets until it “substantially improves its governance and controls,” the Fed said in a statement. does not do. This was the first time the Fed had placed a limit on the total assets of a financial institution. The Fed also forced the bank to remove three board members. As of November 16, 2022, the bank was still under its asset cap.

April 2018: Wells Fargo is fined more than $1 billion for unethical conduct in its mortgage and auto loan businesses. The CFPB found that the bank overcharged consumers on mortgage interest rates and improperly added insurance policies that dealt with additional costs to borrowers’ auto loans.

August 2018: Wells Fargo pays a $2.1 billion fine for its role in the 2008 housing crisis. The Justice Department found that the bank lied to investors about the creditworthiness of the mortgage loans it sold.

February 2020: The Justice Department and the SEC fine Wells Fargo $3 billion for its fraudulent accounts scandal.

September 2021: Wells Fargo pays $72.6 million to settle Justice Department lawsuits after the agency found the bank overcharged hundreds of currency exchange customers. The bank will give “false explanation” to the customers about the erroneous charges added to the cost of swapping currencies.

In addition, a March 2022 Bloomberg report found that Wells Fargo was the only major lender that rejected more black mortgage refinance applications than it approved in the 2020 mortgage refinance boom.

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