Federal regulators fined Wells Fargo a record $1.7 billion on Tuesday for “widespread mismanagement” over multiple years that harmed over 16 million consumer accounts.
The Consumer Financial Protection Bureau said Wells Fargo’s “illegal activity” included repeatedly misapplying loan payments, wrongfully foreclosing on homes, illegally repossessing vehicles, incorrectly assessing fees and interest and charging surprise overdraft fees.
The CFPB ordered Wells Fargo (WFC) to pay the $1.7 billion civil penalty in addition to more than $2 billion to compensate consumers for a range of “illegal activity.” CFPB officials say this is the largest penalty imposed by the agency.
The misconduct described by the CFPB echoes previously reported revelations that have emerged about Wells Fargo since 2016 when the bank’s fake-accounts scandal created a national firestorm.
“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” Rohit Chopra, the CFPB’s director, said in a statement.
Officials also made clear on Tuesday that Wells Fargo is not nearly out of the penalty box with regulators.
Chopra described Wells Fargo as a “repeat offender” and a “corporate recidivist,” adding that Tuesday’s fine is just an “initial step” towards holding the bank accountable.
During a call with reporters, Chopra said the new settlement should not be read as a signal that “Wells Fargo has moved past its long-standing problems or that the CFPB’s work is done here.”
For instance, Chopra noted that the settlement does not provide immunity for individuals at Wells Fargo, and the agency recognizes the $3.7 billion in fines and restitution will not fix the bank’s problems.
Although Chopra credited Wells Fargo with making some progress, he said it’s not clear “they are making rapid enough progress” and said the agency is concerned that the bank’s product launches, growth initiatives and profit-boosting efforts have “delayed needed reform.”
Hinting at further penalties ahead, the CFPB official said regulators “must consider whether additional limitations need to be placed on Wells Fargo” beyond the unprecedented asset cap imposed in 2018.
In a statement, Wells Fargo emphasized that the broad-reaching settlement with the CFPB resolves multiple matters, most of which have been “outstanding for several years.” The bank said the required actions are “already substantially complete.”
“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,” Wells Fargo CEO Charlie Scharf said in the statement. “This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us.”
Wells Fargo said it expects the CFPB settlement will cost it $3.5 billion before taxes in the fourth quarter.
According to the CFPB’s enforcement action, Wells Fargo had “systemic failures” in its auto loan business that harmed more than 11 million accounts. Those failures caused Wells Fargo to wrongfully repossess some borrowers’ vehicles, to improperly charge fees and interest and to fail to refund certain fees, regulators say.
Moreover, regulators say Wells Fargo improperly denied thousands of mortgage loan modifications, causing some customers to lose their homes in “wrongful foreclosures.”
“The bank was aware of the problem for years before it ultimately addressed the issue,” the CFPB said.
Wells Fargo also “illegally” charged surprise overdraft fees and “unlawfully” froze more than 1 million consumer accounts, blocking consumers from accessing their funds for an average of at least two weeks.
Billions in refunds to customers
The Wells Fargo scandal that began in 2016 drew a spotlight to Wells Fargo’s treatment of employees and customers, triggering Congressional hearings, countless regulatory probes and the eventual ouster of two of the bank’s CEOs.
In her final act as chair of the Federal Reserve, Janet Yellen in February 2018 threw the book at Wells Fargo by imposing unprecedented penalties on the bank that remain in place today.
Senator Elizabeth Warren on Tuesday applauded the new penalties on Wells Fargo and pushed for even more.
“This fine is much-needed accountability after Wells Fargo repeatedly abused consumers,” Warren said on Twitter, adding that more regulators should follow Chopra’s “lead to protect the public.
The CFPB said the more than $2 billion in customer refunds Wells Fargo has been ordered to pay includes more than $1.3 billion to consumers hurt by the bank’s auto lending tactics and more than $500 million for illegal surprise overdraft fees and other misconduct related to deposit accounts.
Regulators said Wells Fargo has also been ordered to pay almost $200 million in refunds to those harmed by the bank’s mortgage servicing accounts.
Going forward, Wells Fargo has been ordered by the CFPB to make sure auto loan borrowers receive refunds for certain add-on fees and to stop charging bank account holders surprise overdraft fees.
The agency said these fees are imposed when customers have available funds at the time of purchase but then subsequently had a negative balance once the transaction settled.