CFPB Says It Could Have Pursued $10 Billion Penalty Vs Wells Fargo - Memo
September 19 2017 - 7:35PM
Dow Jones News
By Yuka Hayashi and Emily Glazer
A consumer regulator calculated it could have pursued a $10
billion penalty against Wells Fargo & Co. over its sales
practices scandal before settling on a much smaller fine, according
to government documents released by House Republicans on
Tuesday.
A July 2016 memo written by Consumer Financial Protection Bureau
lawyers also said the bank had fired or disciplined around 10,000
employees related to its sales practices scandal, far higher than
previously disclosed.
The internal CFPB memo was written two months before regulators
took action against Wells Fargo. In it, CFPB enforcement lawyers
alleged that the bank had made "more than 2 million violations" of
the consumer financial protection law related to opening of
unauthorized customer accounts. Those violations, they said, opened
the door to a huge fine based on the lowest penalties included in
the law.
The lawyers went on to recommend a $100 million penalty to"help
resolve this case," stating that the smaller amount would
"sufficiently deter similar violations" and correct the bank's
behavior.
The document was prepared for CFPB Director Richard Cordray,
recommending the bureau take action against the bank. In September
2016, Wells Fargo agreed to pay the $100 million fine to the CFPB
-- a figure Mr. Cordray said was the largest civil penalty ever by
the bureau -- as part of a $185 million settlement with federal and
state regulators over practices that involved opening of millions
of accounts without customers' knowledge.
"We have substantial evidence that the bank was generally aware
of employees 'gaming' its incentive-compensation program by
creating false customer accounts as early as 2006," the lawyers
wrote. "While the amount of known consumer harm is only a few
million dollars, the severity of the risks to consumers is
demonstrated by the pervasiveness of violations."
About a year ago, Wells Fargo said it fired 5,300 employees over
a five-year period for opening sham accounts using unauthorized or
fictitious customer information. The bank hasn't publicly said what
the updated figure is.
The committee's report didn't give a breakdown of how many of
the 10,000 employees were fired versus being disciplined, or what
the figure was based on.
A Wells Fargo spokeswoman declined to comment, saying the bank
is reviewing the committee's release and adding it has taken
"significant steps" to address its sales practices over the past
year.
A CFPB spokesman didn't immediately comment.
In the months following its $185 million settlement over the
fake accounts, the bank has fired several executives and managers
directly related to the scandal, especially in problem areas
including California and Arizona.
Wells Fargo said last month that potentially 3.5 million
accounts were opened using fake or unauthorized customer
information, an increase from the 2.1 million it initially
estimated.
When asked about any additional personnel changes or overall
firings in a recent call with media following the bank's
announcement of fake accounts, Chief Executive Timothy Sloan said
he didn't' have any "additional updates."
The CFPB's internal memo was released as part of a report
prepared by the Republican staff of the House Financial Services
Committee, which has been investigating the CFPB's handling of the
Wells Fargo scandal. The committee is chaired by Rep. Jeb
Hensarling (R., Texas), Congress's leading critic of the CFPB, an
agency created under the Obama administration.
In the report, Republican staffers alleged that the scaling back
of the fine indicated the CFPB rushed into a settlement, fearing
that it might fall behind the Los Angeles City Attorney's Office
and the Office of the Comptroller of Currency that were also
investigating the case.
The OCC earlier this year blamed itself for failing to catch the
problems earlier after conducting a review of its own handling of
the case.
"The CFPB's premature suspension of its investigation meant that
it potentially lost the opportunity to discover recently announced
instances of consumer harm by Wells Fargo," Mr. Hensarling's staff
wrote.
Write to Yuka Hayashi at yuka.hayashi@wsj.com and Emily Glazer
at emily.glazer@wsj.com
(END) Dow Jones Newswires
September 19, 2017 19:20 ET (23:20 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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