Wells Fargo Expected to Face More Regulatory Sanctions--Update
August 04 2017 - 12:16PM
Dow Jones News
By Emily Glazer and Ryan Tracy
Wells Fargo & Co. is expected to face further regulatory
sanctions due to its latest scandal over improperly charging
customers for certain auto insurance, people familiar with the
matter said.
Bank executives are in touch with officials from the Office of
the Comptroller of the Currency over the problems, which Wells
Fargo has said affected as many as 570,000 auto-loan customers. The
bank said it is in the process of issuing customer refunds totaling
around $80 million.
That comes on the heels of last fall's sales-practices scandal
at Wells Fargo. This involved bank employees opening as many as 2.1
million accounts without customers' knowledge.
As a result of that, Wells Fargo entered into a $185 million
settlement with the OCC and others. The OCC also issued a consent
order against the bank late last year.
Now, the OCC is considering taking further action in light of
the new, insurance revelations, the people familiar said. Although
it isn't clear yet what form that could take, the OCC has broad
power to restrict acquisitions and other banking activities.
A September OCC order related to the sales-practice scandal
stipulated, among other things, that Wells Fargo's board "achieves
and maintains an enterprisewide risk-management program designed to
prevent and detect unsafe or unsound sales practices."
A Wells Fargo spokeswoman said the bank has "worked diligently
to fully identify what went wrong and to make things right for our
customers" since it identified the insurance problem in
mid-2016.
The OCC became aware of the insurance issue when Wells Fargo
executives identified and reported it to them last summer. This
spring it made a request to the bank for more information on
specific auto-insurance practices, one of the people familiar with
the matter said.
Regarding the auto loans, Wells Fargo said in a late July
statement that customers' auto-loan contracts require them to
maintain collateral-protection insurance on behalf of the lender
throughout the term of the loan. Wells Fargo purchased that
insurance from a vendor on a customer's behalf if there was no
evidence the customer already had the insurance, the bank said.
That insurance protects against the loss or damage to a vehicle
serving as collateral to secure a loan.
One result was that customers may have been charged premiums for
insurance even if they were paying for their own insurance. In some
cases, those premiums could have contributed to a default that led
to the vehicle's repossession.
Wells Fargo realized there was a problem with this insurance
while working on broader fair-lending reviews in mid-2016 and
spotting problems in the collections process, among other factors,
people familiar with the reviews said.
Wells Fargo reported the insurance problems to the OCC in summer
2016 and provided the regulator with an internal report from
consultants Oliver Wyman that detailed issues in this area. In late
July 2017, the New York Times reported the improper insurance
charges and internal report.
New York Attorney General Eric Schneiderman has sent a subpoena
to Oliver Wyman asking for the report, which is deemed
"confidential supervisory information."
As well, the New York Department of Financial Services sent a
subpoena earlier this week to Wells Fargo seeking information on
how many New York borrowers were affected, people familiar with the
request said.
Democratic members of Congress are seeking hearings on the
auto-insurance matter. This week, Wells Fargo consumer-lending head
Franklin Codel met with staffers on Capitol Hill, going to
Washington, D.C. on his own accord, a person familiar with the
matter said. It is unclear whether hearings will take place.
The OCC has already sanctioned Wells Fargo due to the
sales-practices scandal. A November order by the regulator made it
much longer and cumbersome for the bank to get OCC approval on any
change in leadership or business plan. It also restricted executive
severance payouts, sometimes called "golden parachutes."
Wells Fargo's auto-loan business had previously run into
problems. In September 2016, Wells Fargo settled for $24 million
with the Justice Department and the OCC over the process by which
it repossessed military member's cars, including collections.
It became clear then that problems related to repossessions and
collections weren't limited to service members. That prompted the
bank to look at other issues within the business, which had become
subject to a rising number of consumer complaints. That led to the
discovery of the auto insurance-related issues with vendor National
General Insurance.
Earlier this year, Wells Fargo named a new head of the auto
business. In May, it centralized collections operations to improve
the customer experience, boost consistency and minimize risk to the
business, according to an internal memo reviewed by The Wall Street
Journal. In late July, the bank made additional management changes
within the unit, according to another internal memo reviewed by The
Wall Street Journal.
--Rebecca Davis O'Brien contributed to this article.
Write to Emily Glazer at emily.glazer@wsj.com and Ryan Tracy at
ryan.tracy@wsj.com
(END) Dow Jones Newswires
August 04, 2017 12:01 ET (16:01 GMT)
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