Federal regulators are preparing to fine megabank Wells Fargo about $1 billion for misbehavior in its auto and mortgage businesses, according to two people familiar with the negotiations.
The settlement, which could be announced as soon as Friday, would be the most aggressive move by regulators during the Trump administration to punish a big bank. It also escalates problems at Wells Fargo, which has been under intense federal scrutiny since admitting in 2016 that it had opened millions of sham accounts customers didn’t want.
The regulators – the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency – have been investigating Wells Fargo for months after it acknowledged charging thousands of customers for auto insurance they didn’t need, driving some to default on their loans and lose their cars through repossession. Wells Fargo also admitted that it had charged some customers improper fees to lock in an interest rate for a mortgage. The combined $1 billion fine would be among the largest ever levied by either regulator.
Wells Fargo, which disclosed last week that it faced a hefty fine, and the OCC declined to comment. The CFPB did not immediately respond to a request for comment.
Big banks such as Wells Fargo have looked forward to a resurgence during the Trump administration. President Donald Trump has appointed business-friendly regulators and has supported legislation in Congress to roll back rules that the industry has complained went too far.
But the president has made a point of stressing that he would not shy away from punishing bad behavior. “Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has been incorrectly reported, but will be pursued and, if anything, substantially increased,” Trump said in a tweet in December. “I will cut Regs but make penalties severe when caught cheating.”
The enforcement action will be the first announced by the CFPB since Mick Mulvaney took control of the agency as acting director late last year. Democrats have criticized Mulvaney, who is also director of the Office of Management and Budget, for appearing to abandon the agency’s job of punishing financial institutions and instead focusing on rolling back some of the agency’s most aggressive regulations.
The anticipated fine “does send a signal that when a bank continues to have many serious problems and cannot solve them and they do serious harm to customers, Trump’s CFPB and other agencies will act,” said Carl Tobias, a professor at the University of Richmond’s T.C. Williams School of Law.
“One big question is whether this is a one-off, given what Trump and Mulvaney have been doing to defang the CFPB,” he added.
The expected $1 billion fine is large, but it is hardly crippling for Wells Fargo, which has more than $1 trillion in assets. In fact, last week the bank reported that its quarterly profits had surged to $5.9 billion, in part because of the corporate tax cut passed by Congress last year.
“One billion is a lot money, but that’s not going to put Wells Fargo out of business,” said Erik Gordon, a law professor at the University of Michigan in Ann Arbor.
Still, the fine could further hobble the beleaguered bank’s efforts to rebuild its reputation after the resignation of its longtime chief executive, Wells Fargo’s payment of millions of dollars in fines, and the overhaul of its board of directors. Last month, the Federal Reserve levied an unprecedented penalty against the bank, blocking its ability to expand.
The bank also faced criticism from some lawmakers after it awarded Tim Sloan, who took over as chief executive in the midst of the scandals, a $17.4 million pay package last year. That was a bump up from about $13 million in 2016, when he took the job.
Just Thursday, the New York state comptroller urged Wells Fargo shareholders to push the bank to reveal the details of its pay practices and how they contributed to the bank’s recent scandals.
“Investors need to know whether the company has taken steps to identify employees’ incentive-based compensation that could spur conduct that puts the bank, its customers and investors at risk,” Comptroller Thomas DiNapoli said in a statement.
The running scandals have made it difficult for customers – and regulators – to regain trust in the bank, Gordon said. “As their public face they wanted to be seen as the friendly Main Street bank, not like those bad guys on Wall Street,” he said. “But underneath was a culture that led to widespread bad action at branch after branch.”
(c) 2018, The Washington Post · Renae Merle