Wells Fargo will pay $1 billion in fines to two U.S. regulators, the agencies announced Friday, in the latest fallout for the bank as it reels from a wave of scandals.
The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency accused the San Francisco-based bank of improper mortgage and auto-lending practices that harmed consumers. Both ordered the bank to provide restitution to customers.
The OCC also said the No. 3 U.S. bank by assets must get its approval before hiring or appointing any top executives or board members.
In settling with the agencies, a move that had been expected, Wells Fargo did not admit or deny any allegations. The agreement is another black mark for an institution that is still recovering from a 2016 sales scandal over unauthorized customer accounts.
Both regulators on Friday said Wells Fargo wrongfully charged some customers to extend lock-in periods for mortgage interest rates when it was the bank's fault that loans did not close within a certain time frame. The agencies also faulted the bank for improperly forcing and maintaining auto insurance on some consumers who didn't need such coverage, a practice that led in some instances to wrongful vehicle repossessions.
The settlement adds to legal costs Wells Fargo has faced since the sales scandal, reducing its previously reported first-quarter profit of $5.9 billion to $4.7 billion.
In a statement, Wells Fargo CEO Tim Sloan said the bank for more than a year and a half has made progress in strengthening operational processes, internal controls, compliance and oversight, as well as reviewing all of its practices.
"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 as we deliver our commitments with focus, accountability, and transparency," Sloan said. "Our customers deserve only the best from Wells Fargo, and we are committed to delivering that.”
The comptroller's office, an independent bureau of the Treasury Department that regulates national banks, also said Friday it found deficiencies and reckless unsafe or unsound practices in Wells Fargo's risk management program, including inadequate reporting to the bank's board about compliance concerns.
The OCC told Wells Fargo it reserves the right to take additional action, including imposing restriction on its business. The regulator also ordered Wells Fargo to produce a risk management plan.
Wells Fargo disclosed last week it was in talks with the two regulators, who had offered a combined settlement of $1 billion.
The agenices said Friday the OCC's portion of the penalties — $500 million — was used by the CFPB toward the satisfaction of that agency's $1 billion fine. In essence, the regulators assessed $1.5 billion in fines but collected $1 billion.
Mulvaney's first fines
Friday's penalties mark the largest fine by the Trump administration against a big bank.. The CFPB action was also the first under former Charlotte-area congressman Mick Mulvaney, whom President Donald Trump tapped last year to head the regulator.
Trump, in a tweet last December, took aim at Wells, pledging that fines and penalties against the bank "will not be dropped." The tweet came after news reports that Mulvaney was reviewing whether Wells should pay tens of millions of dollars over alleged mortgage abuses.
The latest punishment dwarfs the $100 million fine the CFPB issued against Wells Fargo for the 2016 scandal. Until Friday, that had been the largest penalty the bureau had imposed on a financial institution.
In a statement, Mulvaney said: "We have said all along that we will enforce the law. That is what we did here.”
Consumer advocates, though, said Wells Fargo's fines will be more than offset by federal tax legislation passed in December that lowers corporate taxes. They called for more actions to hold the bank and its executives accountable.
"Whether they work in branch locations, auto lending and insurance, collections or another department, bank workers are facing the threat of being fired every day if they don't meet insane metrics that prey on customers and employees alike," said the Committee for Better Banks, an advocacy group for bank branch employees.
"We need the bank to fire Tim Sloan, respect workers' right to organize and speak out, and make sure the Consumer Financial Protection Bureau has the leadership and means to make sure this never happens again," the group said.
Keefe, Bruyette & Woods analyst Brian Kleinhanzl noted Friday the settlement removes a cloud that was over Wells Fargo, which he said should be able to manage the regulators' requirements.
"But there are still overhangs on when business momentum will return to the company and whether or not additional wrongdoing will be found," he wrote in a note to clients.
In other regulatory actions against Wells Fargo this year, the Federal Reserve placed restrictions on the bank's growth, in an unprecedented step. And last month, it disclosed a probe by federal authorities, as well as a review by the bank’s board, of activities in its wealth and investment management unit.
Asked about that investigation last week, Chief Financial Officer John Shrewsberry said he couldn't discuss the ongoing matter, "because it's midway through."