The Federal Reserve announced Friday it is imposing more penalties on Wells Fargo, freezing the bank’s growth until it can prove it has improved its internal controls. In addition, bank agreed to replace four board members.
It’s the latest blow against the San Francisco bank that has had its reputation tarnished by revelations it opened phony customer accounts and sold auto insurance to customers who did not need it.
The new penalties were announced on Fed Chair Janet Yellen’s last day at the central bank.
“We cannot tolerate pervasive and persistent misconduct at any bank,” Yellen said in a statement. “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”
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The Fed said it is restricting the bank’s assets to the level where they stood at the end of last year until it can demonstrate that it has improved its internal controls.
The announcement came after the close of trading on Wall Street Friday. The bank’s stock fell more than 6 percent in after-hours trading.
Wells Fargo has 16 members on its board of directors. It agreed to replace three directors by April and another one by year-end. The letter did not say if particular board members were being singled out. Fed officials referred questions about who will be replaced to the bank.
Wells Fargo has said it employs 25,000 in Charlotte, its largest employment hub.
In a statement, Wells Fargo said it is “confident” it will satisfy the Fed’s requirements.
“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” the bank’s CEO, Timothy Sloan, said. “It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress.”
Sloan said that “while there is still more work to do, we have made significant improvements over the past year to our governance and risk management that address concerns highlighted in this consent order.”
The Fed’s new order marked the latest chapter in a series of scandals which have rocked the bank in recent years.
Wells Fargo has admitted that employees opened more than 3 million fake accounts in order to meet sales quotas. It ended up paying $185 million to regulators and settled a class-action suit for $142 million.
It also has admitted it signed up hundreds of thousands of auto loan customers for auto insurance they did not need. Some of those customers had their cars repossessed because they could not afford both the auto loan and insurance payments.
And Wells Fargo also offered refunds to customers last year after acknowledging that its mortgage bankers unfairly charged them fees to lock in interest rates on mortgages.
The Fed’s action came on a 3-0 vote. Randal Quarles, who is the Fed’s vice chairman for supervision, has recused himself from participating in matters involving Wells Fargo.
With Yellen’s departure, Fed officials said that the central bank will still be able to deal with Wells Fargo issues with the two remaining board members – Jerome Powell, who has been a member of the Fed’s board since 2012 and is taking over for Yellen as chairman on Monday, and board member Lael Brainard.
Marvin Goodfriend, an economics professor from Carnegie Mellon University, has been nominated by President Donald Trump for one of the vacancies on the seven-member board but the Senate has not yet acted on nomination. Trump has not yet nominated people to fill the other vacancies.