WASHINGTON (CN) – Federal regulators slammed Wells Fargo with $1 billion in fines on Friday for its force-placed auto insurance policies and for making mortgage customers pay the fees it was supposed to carry.
None of the fines will go toward consumers, but the bank is also required to make unspecified “restitution.” In a statement on its website, Wells Fargo emphasized that it has been upfront about both failings identified in the coordinated action brought this morning by the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
“For more than a year and a half, we have made progress on strengthening operational processes, internal controls, compliance and oversight, and delivering on our promise to review all of our practices and make things right for our customers,” Wells Fargo President and CEO Timothy Sloan said in a statement. “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. Our customers deserve only the best from Wells Fargo, and we are committed to delivering that.”
Wells Fargo’s violations are laid out in two consent orders and a cease-and-desist order. The action by the CFPB represents the bureau’s first penalty since Mick Mulvaney took its helm under President Donald Trump in late November.
“In addition to the reckless unsafe or unsound compliance risk management practices … , prior to June 2012, and continuing through October 2016, the bank’s Dealer Services unit, and its vendor, caused the improper placement and/or maintenance of collateral protection insurance (‘CPI’) policies on automobile loan accounts, and charged premiums, interest, and other fees on borrowers’ accounts where the borrowers had demonstrated adequate insurance under the terms of their automobile loan note/contract,” one of the orders states. “The bank, after appropriately placing CPI policies on some borrowers’ accounts, improperly maintained CPI policies on borrowers’ accounts after the borrowers had demonstrated that they had obtained adequate insurance on their vehicles.”
Auditors found that the the force-placed CPI program caused Wells Fargo to improperly charge premiums, interest and fees, leading sometimes to borrowers having their vehicles repossessed by the bank for loan defaults caused by the bad policies.
The improper mortgage policies meanwhile were in effect from at least September 2013 to March 2017.
“In a number of instances, the bank charged customers mortgage interest rate lock extension fees even though the bank had caused the loan closing to fail to occur within the mortgage interest rate lock period,” one of the orders states.
“As a result of the bank’s mortgage interest rate lock extension fee practices, customers were improperly charged mortgage interest rate extension fees when the bank should have borne those costs,” it continues.
The terms of the consent orders require remediation and for Wells Fargo to improve its risk management and compliance management.
While the CFPB assessed a $1 billion fine, regulators are treating the $500 million penalty assessed by the OCC against Wells Fargo as partial satisfaction of that fine.
The OCC said it reserves the right to take additional supervisory action, including imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.
The bank has already faced restrictions since November 2016 relating to the approval of severance payments to employees and the appointment of senior executive officers or board members.
“The original restrictions related to severance payments applied to all employees, which unnecessarily delayed severance payments to employees who were not responsible for the bank’s deficiencies or violations,” the OCC explained. “This order maintains restrictions on the approval of severance payments to senior and executive officers and the appointment of senior executive officers or board members.”
Wells Fargo revealed that it will adjust its first quarter 2018 preliminary financial results in light of the fines, reducing reported first quarter 2018 net income to $4.7 billion, or 96 cents per diluted common share.
The bank said it will also submit board-reviewed plans detailing its ongoing efforts to strengthen its compliance and risk management, and its approach to customer-remediation efforts.
None of the abuses memorialized in Friday’s actions relate directly to the bank’s sales-practices scandal from last year, in which the bank admitted that its employees had opened as many as 3.5 million bank and credit card accounts without getting customers’ authorization.
Scrutiny of Wells Fargo has been under intense for months. Citing “widespread abuses” earlier this year, the Federal Reserve took the historic step of forbidding Wells Fargo from growing larger than the $1.95 trillion in assets that it held at the time. The Fed also mandated replacement of several directors on the bank’s board.