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 .
Details about these questions were not provided, and the CFPB and Wells Fargo declined to comment to NerdWallet. However, in a filing filed with the Securities and Exchange Commission in late October, Wells Fargo said it is in “resolution talks” with the CFPB over auto loans, consumer deposits and mortgage loans.
Wells Fargo and the CFPB
This isn’t the start 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 customer consent — was followed by CFPB reprimands and a raft of other federal actions.
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 agency and Wells Fargo “is not imminent.”
Wells Fargo, based in San Francisco, is the country’s third-largest bank by household wealth, according to the Federal Reserve, with $1.69 trillion as of September 2022.
In its third-quarter results filed with the SEC in October, the bank reported $2 billion in operating losses in the quarter due to “litigation, client handling 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 watch what happens.
experts on site
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 less than its net profit of $5.1 billion in the third quarter of 2021, according to public records.
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. If action is taken against a bank that size, it will affect the consumer finance industry, said Jim Hawkins, a law professor at the University of Houston Law Center.
“Anytime the CFPB takes action against a bank, all the other banks are watching what happens,” says Hawkins. “So it’s always a cost-benefit analysis for these banks, isn’t it? They try to see how likely it is that they will be punished and how much they will be punished. … If they 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 we don’t even get a fine 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 supervise consumer financial institutions and to enforce laws and regulations. Under the Obama administration, Congress created the CFPB in response to the largely deregulated mortgage industry that led to the Great Recession in 2007 and 2008.
Previously, various agencies were charged with overseeing and enforcing consumer financial market laws. Creating the CFPB centralized those efforts. Its creation, Hawkins says, meant there was a more dedicated watchdog to keep tabs on banks and financial institutions.
“Before the CFPB, all federal regulators focused on the safety and soundness of banks. Their primary task was not consumer protection. The CFPB is unique in that its sole focus is on protecting consumers, while the FDIC [Federal Deposit Insurance Corp.] And the Federal Reserve is doing everything it can to make sure the banks don’t close,” Hawkins said.
Fines and Legal Action: The Recent History of Wells Fargo
Wells Fargo’s entanglement with the CFPB began in September 2016, when the bank admitted that between 2011 and 2015, employees created about 2.1 million fake accounts for existing customers without their consent 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 caught in more fraudulent or unethical activities.
March 2017: The bank reached a $110 million settlement to compensate customers affected by the counterfeit bill 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, setting an asset ceiling for the institution at $1.95 trillion in assets until it “significantly improves its governance and control,” the Fed said in a statement. does not. This was the first time the Fed had set a limit on the total assets of a financial institution. The Fed also forced the bank to fire three board members. On November 16, 2022, the bank was still below its asset cap.
April 2018: Wells Fargo is fined more than $1 billion for unethical behavior in its mortgage and auto loan business. The CFPB found that the bank overcharged consumers for mortgage interest rates and erroneously added insurance policies that incurred extra charges on 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 SEC fine Wells Fargo $3 billion for its fraudulent billing scandal.
September 2021: Wells Fargo pays $72.6 million to settle Justice Department lawsuits after the agency discovered the bank overcharged hundreds of currency exchange customers. The bank will give “false explanations” to the customers about the erroneous charges added to the cost of currency exchange.
In addition, a March 2022 Bloomberg report found that Wells Fargo was the only major lender to reject more applications for black mortgage refinancing than approved during the 2020 mortgage refinancing boom.