Wells Fargo hit with record $3.7B fine for ‘rinse-repeat cycle’ of loan violations

Wells Fargo agreed Tuesday to pay a record $3.7 billion to settle charges that it harmed customers through illegal practices that included surprise overdraft fees, unlawful account freezes and improperly seized vehicles.

The massive sum includes a $1.7 billion fine imposed by the Consumer Financial Protection Bureau – the largest of its kind in the watchdog agency’s history. Wells Fargo also will pay more than $2 billion in compensation to more than 16 million customers impacted by the bank’s “illegal conduct,” the agency said.

“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” CFPB Director Rohit Chopra said in a statement. “The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.”

Wells Fargo shares sank about 2% in trading on Tuesday. The company’s stock is down 19% since January.

Wells Fargo CEO Charles Scharf said the agreement with the CFPB is part of the effort to “transform operating practices at Wells Fargo and to put these issues behind us.”
AFP via Getty Images

The CFPB said Wells Fargo’s harmful conduct stretched back several years and occurred across several parts of its business. The bank’s financial services include mortgages, auto loans and banking.

According to the watchdog, Wells Fargo’s misdeeds included wrongfully repossessing customer vehicles and had “systematic failures in its servicing of automobile loans that resulted in $1.3 billion in harm across more than 11 million accounts.”

Wells Fargo also improperly rejected thousands of customer applications to modify their mortgages – a practice that caused some customers to lose their homes to foreclosure.

The San Francisco-based bank also charged illegal “surprise overdraft fees” on customers’ debit card transactions and wrongfully froze more than 1 million consumer banking accounts after an internal system incorrectly flagged fraudulent transactions.  

Wells Fargo CEO Charlie Scharf described the settlement as “an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us.”

“Our top priority is to continue to build a risk and control infrastructure that reflects the size and complexity of Wells Fargo and run the company in a more controlled, disciplined way,” Scharf said.

Wells Fargo said it expects an operating loss expense of $3.5 billion in the fourth quarter of this year in connection to the penalty.

“This includes, among other things, the incremental costs of the CFPB civil penalty and related customer remediation as well as amounts related to outstanding litigation matters and other customer remediation,” the bank said in a release.

The bank also outlined the progress it has made toward strengthening its corporate governance, including an internal restructuring of its business meant to “enable greater oversight and transparency” of its operations.

The $3.7 billion in fines and penalties is the latest blow for Wells Fargo, which has drawn sharp scrutiny from regulators and lawmakers over its business practices in recent years.

In 2018, the Federal Reserve placed an asset cap on Wells Fargo, requiring the bank to keep its holdings below $1.95 trillion until it had properly addressed its internal governance standards. In September 2021, Fed Chair Jerome Powell said the cap would remain in place until Wells Fargo’s issues were fully remedied.

“While we do not see today’s action as having a direct read-though to the asset cap and its potential removal, we would take today’s announcement as a sign of positive progress on moving toward that ultimate goal,” Jefferies analyst Ken Usdin said in a note on the announcement.

With Post wires

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