Wells Fargo will pay US$1 billion ($1.4b) 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 yesterday, Wells will pay US$500 million to the Office of the Comptroller of the Currency, its main national bank regulator, as well as a net US$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 yesterday's announcement, the CFPB and the OCC penalised 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' authorisation. The account scandal torpedoed Wells Fargo's reputation as the nation's best-run bank.
In that case, Wells Fargo paid a combined US$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 US$500m paid to the Comptroller of the Currency will go directly to the US Treasury, according to the order. The US$500m 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 US$500m 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 US$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 yesterday.
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 US$100m 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 behaviour.
"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.
Wells Fargo adjusted its previously reported first-quarter earnings to reflect the penalty. The nation's third-largest bank now says it made US$4.7b in the first 90 days of the year, down from US$5.46b in the same period a year earlier.