By Yuka Hayashi
WASHINGTON -- Regulators levied the largest banking fine of the
Trump era against Wells Fargo & Co. on Friday over claims of
misconduct in its auto and mortgage lending businesses, the latest
in a series of regulatory woes for the bank.
The $1 billion settlement with the Consumer Financial Protection
Bureau and Office of the Comptroller of the Currency concerned the
bank's failures to catch and prevent problems, including improper
charges to consumers in its mortgage and auto-lending
businesses.
The fine is a signal that while officials are working to ease
postcrisis regulatory rules, they won't let companies off the hook
for misconduct.
"We have said all along that we will enforce the law. That is
what we did here," CFPB acting director Mick Mulvaney said.
As part of the settlement, the bank also agreed to offer
restitution to customers and improve risk and compliance management
practices.
The OCC ordered the bank to develop and submit a compensation
plan for affected customers within 120 days. The amount of customer
restitution hasn't yet been determined and would be separate from
the penalty.
"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 OCC said.
The regulator added that it "found deficiencies in the bank's
enterprisewide compliance risk management program that constituted
reckless, unsafe or unsound practices."
The settlement covers the bank's practices in two main areas:
charging improper fees for rate-lock extensions in mortgage lending
and selling unnecessary insurance coverage to auto-loan customers.
Overcharges linked to the sale of unnecessary auto insurance could
have contributed to defaults that resulted in vehicle repossessions
for at least 27,000 customers, the settlement said.
Between 2011 and 2016, "hundreds of thousands" of auto-loan
consumers were charged substantial insurance premiums, typically
just over $1,000 a policy, for unnecessary insurance coverage, it
said. The CFPB said Wells Fargo has already discontinued the
insurance practice.
"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," said Timothy J. Sloan, president
and chief executive of Wells Fargo.
The settlement also requires the bank to receive approval from
the OCC before appointing any senior executive officers or
directors, or making payments to certain senior employees.
The San Francisco-based bank has faced a number of regulatory
woes in recent years, including scrutiny of illegal sales practices
that involved the opening of as many as 3.5 million accounts
without customers' consent that led to a $185 million fine.
Regulators have since probed the bank's practices in auto lending,
mortgages, wealth and investment management and foreign
exchange.
As a result of the fine announced Friday, Wells Fargo restated
its first-quarter earnings, lowering its net income to $4.7
billion, or 96 cents a diluted share, a reduction of $800 million,
or 16 cents a diluted share, from previously reported figures.
Wells Fargo disclosed last week that the regulators had offered
to resolve civil investigations for $1 billion.
The settlement was the first enforcement action involving the
CFPB since Mr. Mulvaney took over the agency in November. It
reflects a shift in the bureau's enforcement strategy to target
obvious cases of corporate wrongdoing and give them strong
punishment.
Mr. Mulvaney has said the agency will go after "bad actors" but
no longer "push the envelope" to use aggressive interpretation of
the law to curb activities of companies, referring to criticism of
the enforcement approach the bureau took during the Obama era. In
2015, its most active year for enforcement, the CFPB filed 55
cases.
"There is much doubt that enforcement actions will be at the
same pace" as under the previous leadership, said Lucy Morris, a
partner at Hudson Cook and a former CFPB enforcement lawyer. "I
also doubt that they will be of the same type."
Democrats and consumer groups have criticized the changes Mr.
Mulvaney has been making to the bureau's regulatory and enforcement
policies.
Sen. Sherrod Brown (D., Ohio) said he was pleased with the
latest penalties, but they "barely dent the almost $24 billion the
administration has and will provide Wells Fargo through tax cuts
and proposed capital relief."
Friday's announcement is one of several recent regulatory
actions against the bank. In February, the Federal Reserve took an
unprecedented enforcement action that barred the bank from growing
past the $1.95 trillion in assets it had at the end of 2017. The
Fed cited "widespread consumer abuses" in its rebuke.
Mortgage-lending violations involved Wells Fargo's failure to
honor interest-rate lock agreements with customers, the government
said in the settlement, leading to some customers being improperly
charged to extend locks.
In auto lending, regulators said the bank required some 2
million borrowers to purchase insurance covering vehicle damage
even when customers already had adequate coverage. More than a
quarter of policies were later found duplicative and canceled. The
bank has refunded some but not all of the fees associated with the
program.
Of the $1 billion fine, $500 million will be paid to the OCC and
the rest will be deposited in the CFPB's civil penalty fund. Money
from that fund covers consumer education and financial literacy
programs, in addition to helping consumers who have not received
adequate compensation.
--Ryan Tracy contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
April 20, 2018 14:53 ET (18:53 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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