The Consumer Financial Protection Board on Tuesday said it is requiring Wells Fargo & Co. to pay $3.7 billion as a result of alleged widespread mismanagement of auto loans, mortgages and deposit accounts.
The CFPB said Wells Fargo “repeatedly misapplied loan payments, wrongfully foreclosed on homes and illegally repossessed vehicles, incorrectly assessed fees and interest, charged surprise overdraft fees, along with other illegal activity affecting over 16 million consumer accounts.”
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has been ordered to pay more than $2 billion in redress to consumers in addition to a $1.7 billion civil penalty for legal violations.
“Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank,” the CFBP said.
Wells Fargo did not admit wrongdoing as part of the settlement.
Wells Fargo CEO Charlie Scharf said the settlement marks an “important milestone in our work to transform the operating practices of Wells Fargo and to put these issues behind us.”
As a result of the settlement, the CFPB will terminate a 2016 consent order, Wells Fargo said.
The settlement will also provide clarity and a path forward for termination of a 2018 consent order and will underscore that the CFPB “recognizes recent acceleration of efforts,” the bank said.
“The CFPB recognized that since 2020, the company has accelerated corrective actions and remediation, including to address the matters covered by today’s settlement,” the bank said in a statement.
Wells Fargo warned it will book an operating-loss expense of $3.5 billion, or $2.8 billion net of tax, when it reports fourth-quarter results on Jan. 13.
“Wells Fargo has made significant progress in strengthening its risk and control infrastructure over the past several years,” the bank said.
Jefferies analyst Ken Usdin said in a research note that the CFPB action marks a “positive step in the regulatory improvement process” for Wells Fargo.
But he said Wells Fargo’s plan to book a fourth-quarter operating loss of $3.5 billion does not mean that the bank’s accrual for probable and estimable losses (RPL), which it discloses every quarter, will go to zero.
“We would hope that probable and estimated losses would decline somewhat after [the fourth quarter] given the magnitude of today’s settlement,” Usdin said. “[Wells Fargo’s] separate announcement that it will book $3.5 billion of operating losses in [the fourth quarter] suggests that only some of the CFPB-specific settlement was already reserved for. But this sizable [fourth-quarter] number also means that [Wells Fargo] has been booking losses for other actions along the way that are still open-ended.”
Scharf has been CEO of Wells Fargo since late 2019 and has been focusing on bringing the megabank into regulatory compliance.
While an asset cap has remained in place for Wells Fargo since 2018 as punishment for its phony-accounts scandal, other regulatory matters are now in the rear-view mirror.
In December 2021, the Office of the Comptroller of the Currency (OCC) terminated a consent order issued in 2015 regarding add-on products that the bank sold to retail banking customers.
A CFPB consent order issued in 2016 regarding the bank’s retail practices expired in 2021, and a 2015 consent order from the OCC regarding Wells Fargo’s bank-secrecy and anti-money-laundering compliance was terminated in January 2021.
Finally, a CFPB consent order issued in 2015 regarding claims that the bank violated the Real Estate Settlement Procedures Act expired in January 2020.
Shares of Wells Fargo fell 0.3% on Tuesday. The stock is down 13.1% in 2022, compared with a 19.6% loss by the S&P 500
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