Wells Fargo to pay $1 billion fine to settle federal probes of mortgage, insurance sales

Wells Fargo will pay a $1 billion fine to settle charges the bank charged mortgage borrowers inappropriate fees and forced loan customers to purchase unnecessary auto insurance, two federal agencies announced Friday.

The Consumer Financial Protection Bureau (CFPB) announced the settlement in partnership with the Office of the Comptroller of the Currency (OCC), both of which had been investigating Wells Fargo.

“I am especially pleased that we were able to work closely and effectively with our colleagues at the OCC, and I appreciate the key role they played in the negotiations,” said acting CFPB Director Mick Mulvaney.

“As to the terms of the settlement: we have said all along that we will enforce the law. That is what we did here.”

Wells Fargo will pay a $1 billion fine, which will be deposited at the U.S. Treasury, and is ordered to reimburse roughly 50,000 affected customers up to $10 million. The bank is also ordered to create a committee to ensure compliance with the order and detail extensive plans to avoid similar abuses in the future.

“The OCC took these actions given the severity of the deficiencies and violations of law, the financial harm to consumers, and the bank’s failure to correct the deficiencies and violations in a timely manner,” the agency said Friday.

The action against Wells Fargo is the largest fine levied against a bank under President Trump, who said in December that the bank should face severe penalties. Wells Fargo revealed in its first quarter earnings report two week ago that it was in talks with the CFPB and OCC to settle the charges for $1 billion.

Wells Fargo CEO Tim Sloan said, “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. Our customers deserve only the best from Wells Fargo, and we are committed to delivering that.”

The CFPB and OCC settlement is unrelated to the federal probes of Wells Fargo’s opening of as many as 3.5 million accounts for customers without their authorization while charging fees for the unwanted services. The Federal Reserve in January imposed strict growth restrictions and targeted four Wells Fargo board members for removal in response.

The CFPB, established to weed out predatory lending, said Wells Fargo had unfairly charged mortgage borrowers fees to lock in interest rates over delays that the customers did not cause.

Banks will let mortgage borrowers lock in interest rates by paying a fee to hedge against rising rates later on in the agreement. Wells Fargo would charge customers a fee to extend the period during which they could cement the interest rate if the loan did not close before a certain time frame.

Wells Fargo policy was to absorb fees to extend the interest rate lock period when the delay was not caused by the customer. But ProPublica reported in January 2017 that Wells Fargo had charged customers for the fees that should have been covered by the bank.

The CFPB found that Wells Fargo employees were aware of flaws in their interest-rate lock policies, and highlighted a October 2016 internal audit revealing that Wells Fargo had “inconsistently applied its policy and charged borrowers Extension Fees in situations where [Wells Fargo] was responsible for the delay in the loan’s closing.”

The CFPB also said Wells Fargo “caused hundreds of thousands of consumers to be charged substantial premiums” for unnecessary or duplicative auto insurance. The bank had forced borrowers who used autos to secure loans to purchase insurance for the vehicle being used as collateral.

Wells Fargo had forced roughly 2 million borrowers to purchase insurance for autos used as collateral, including hundreds of thousands who already had insurance policies for those vehicles, according to the CFPB complaint.

The CFPB accused Wells Fargo of failing to recognize warning signs that they’d been forcing customers to buy unnecessary products, including high cancellation rates of the forced policies.  

The OCC, which oversees bank safety and soundness, charged Wells Fargo with failing to create a sufficient compliance system and to identify and respond to abuses and with leaving critical oversight positions within the bank empty.

“[Wells Fargo] has failed to implement and maintain a compliance risk management program commensurate with the Bank’s size, complexity and risk profile,” the OCC wrote in its complaint.

“The Bank’s failure to implement and maintain a satisfactory compliance risk management program has caused the Bank to engage in reckless unsafe or unsound practices and violations of law.”

The CFPB and OCC action won mild praise from consumer protection advocates who feared that Trump-appointees Mulvaney and Comptroller of the Currency Joseph Otting would let Wells Fargo off the hook. But groups pushing for stronger federal bank oversight called for steeper penalties against Wells Fargo for a track record of scandals and customer abuse.

“This can’t end accountability for Wells Fargo’s widespread misconduct,” said Bartlett Naylor, a financial policy advocate at Public Citizen. “Shareholders, who will be footing the bill for this fine, did not conceive, oversee and conceal this massive fraud. Wells Fargo executives did.”

Pamela Banks, senior policy counsel for Consumers Union, called Wells Fargo “the poster child for why consumers need a strong watchdog in Washington keeping an eye out for unscrupulous banking practices and other financial scams.”

The fine against Wells Fargo, while substantial, will do little to the bank’s bottom line. Wells Fargo reported $5.9 billion in earnings during the first quarter of 2018, up from $5.6 billion from the same time in 2017.

Nonprofit bank watchdogs said the fine is more than outweighed by the billions of dollars in tax savings Wells Fargo and other major banks will enjoy from the 2017 tax cuts.

“Wells Fargo can sign over $1 billion for their misdeeds today with money to spare on out-of-touch executive pay and share buybacks while still failing to address the atrocious lies and scheming,” said Erin Mahoney, organizing coordinator for the Committee for Better Banks.