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WASHINGTON (AP) — Consumer banking giant Wells Fargo agreed to pay $3.7 billion to settle charges that it harmed customers by charging illegal fees and interest on auto loans and mortgages, as well as incorrectly applying overdraft fees against savings and checking accounts.
Wells was ordered to repay $2 billion to consumers by the Consumer Financial Protection Bureau, which also enacted a $1.7 billion penalty against the San Francisco bank Tuesday. It’s the largest fine ever leveled against a bank by the CFPB and the largest yet against Wells, which has spent years trying to rehabilitate its image after a series of scandals tied to its sales practices.
Regulators made it clear, however, that they believe Wells Fargo has further to go on that front. “Put simply: Wells Fargo is a corporate recidivist that puts one out of three Americans at risk for potential harm,” said CFPB Director Rohit Chopra, in a call with reporters.
The bank’s pattern of behavior has made it necessary for regulators to take additional actions against Wells Fargo that go beyond the $3.7 billion in fines and penalties, Chopra said.
The violations impacted more than 16 million customers, the bureau said. In addition to improperly charging auto loan customers with fees and interest, the bank wrongfully repossessed vehicles in some cases. The bank also improperly denied thousands of mortgage loan modifications for homeowners.
Wells Fargo has been sanctioned repeatedly by U.S. regulators for violations of consumer protection laws going back to 2016, when employees were found to have opened millions of accounts illegally in order to meet unrealistic sales goals. Since then, executives have repeatedly said Wells is cleaning up its act, only for the bank to be found in violation of other parts of consumer protection law, including in its auto and mortgage lending businesses.
Wells paid a $1 billion penalty in 2018 for widespread consumer law violations, the largest against a bank for such violations at the time. Wells remains under a Federal Reserve order forbidding the bank from growing any larger until the Fed deems that its problems are resolved. That order, originally enacted in 2018, was expected to last only a year or two.
CEO Charles Scharf said in a prepared statement Tuesday that the agreement with the CFPB is part of an effort to “transform operating practices at Wells Fargo and to put these issues behind us.”
While Wells Fargo tried to frame the agreement with the CFPB as a resolution of established bad behavior, CFPB officials said some of the violations cited in Tuesday’s order took place this year.
“This should not been seen as Wells Fargo has moved past its problems,” Chopra said.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
While I hate most banks and don't trust any of 'em, I truly despise WF. The only big bank I can stomach to some degree is JPM, but I have no relationship with them outside of some credit cards.
A Fidelity 2% cash back credit card requires you to have a Fidelity account to redeem that 2%. The WF card doesn't come with a similar requirement.
I guess WF figures that once it's got your name it can reel you in for other accounts, whether through honest sales practices or through less scrupulous means. Same for that zero interest loan.
Once you have it though you don't want to cancel it. Better for your credit standing to keep it and not use it.
If you would kike to subscribe to this free newsletter from Matt Levine, here is the link.
Oh Wells Fargo
I think often about the time I wrote: And lots of computer engineers tweeted and emailed to be like “no, actually, it is a hard problem of computer science to have a big database of who has what, and to update it instantly and reliably to reflect transactions from many different sources.” And I was like, sure, fine, I guess. I still feel like I was entitled to be right: A bank is, at its heart, a computer for keeping track of who has money, and for updating its ledger as people send and receive money. And at a high level you and I could describe how we’d expect that computer to work — “if I deposit $100 in an ATM, the bank will increase the number in my account by $100,” that sort of thing — and we will be disappointed if it doesn’t work that way, if the bank loses track of who has the money or how much they have, or if it doesn’t update its ledger promptly or process transactions in the right order. If the bank messes up and says “look I am sorry but keeping track of money is a hard job and you can’t expect us to do it with 100% accuracy,” we will say things like “yes we can” and “that is literally exactly what we expect of you” and “if keeping track of the money is too hard for you then maybe you should not be a bank” and “now you have to pay an enormous fine.” And yet, sure, empirically, banks do sometimes mess it up. It’s not as easy as it sounds.
Wells Fargo, for instance, messes it up a lot: Here is the CFPB’s consent order from yesterday, which is basically just a litany of “Wells Fargo’s computers messed up.” For instance: If you owe Wells Fargo money on a car loan, and you don’t pay it, and you have a payment deferment, they won’t charge you a fee, but if you don’t have a payment deferment they will. But if you have a payment deferment, but they don’t write it down in the right place, they will also charge you the fee, and then they will get in trouble. In some sense this is profit-maximizing behavior by Wells Fargo: If they agree to defer payments, and then charge you the fees anyway, they will make more money in fees. But it doesn’t seem intentional, and the CFPB doesn’t think it was. (Why say you agree to the deferment, and then charge the fees?) It seems like a failure of systems, of “technology, audit and compliance”: Wells Fargo did not do a good job of keeping track of deferments, so it sometimes charged fees by mistake. (Continued)
Matt Levine, Part 2:
If you are delinquent on a car loan to Wells Fargo, eventually some system at Wells Fargo decides to repossess your car. There is some delay between when this system sets the repossession in motion and when someone actually takes the car. In the meantime, if you make a payment, or sign an agreement with some other person at Wells Fargo to avoid repossession, then some other system at Wells Fargo knows that Wells Fargo should not repossess your car. Do those systems talk to each other? Does the person signing the agreement, or the mailbox receiving your payment, have a way to stop the repossession that is lurching into motion? Meh, sometimes, maybe, but not all the time.
Again, this does not seem like rational profit-maximizing behavior by Wells Fargo; repossessing the car is surely more of a pain than having the borrower start making payments again. No one at Wells Fargo was like “bwahahaha, a clever trick would be to repossess people’s cars even after they start paying their loans back.” Wells Fargo just did it anyway. It is an emergent feature of Wells Fargo’s bureaucracy, and its computers. That is just, like, Wells Fargo entered into a complicated contract with its auto-loan borrowers, and the contract provided that in certain circumstances, years in the future, Wells Fargo would have to send some money to the borrowers, and Wells Fargo just stuck the contract in a drawer somewhere and ignored it, and so did the borrowers, so it never sent them the money. Very understandable, for the borrowers, who are busy people who have jobs and lives and are not necessarily reading every word of their auto-loan contracts. Less understandable, for the bank, which is a bank. It is a little hard to tell how that one would work? Like, the rule is something like “certain mortgage borrowers need to be offered this loan modification.” Wells Fargo went through its records to see who needed to be offered the modification, and decided not to offer it to these 190 people because they were dead. They were not dead, so, a failure of record-keeping by Wells Fargo. But also … they were not offered the modification, so they kept paying their mortgages?[1] Like every month Wells Fargo would get a check from these people whom it had erroneously identified as deceased? If you got a check every month from someone who you thought was dead, you would be surprised, and presumably you would update your views. (You might think “aha, they are not dead,” or you might think “wow ghosts are real and very financially responsible,” or you might call them to say “so are you dead or what?”) But Wells Fargo is not a human with normal human intuitions. It is a big bureaucratic institution with databases that don’t necessarily talk to each other in sensible ways, and it blithely went along cashing checks from people while also believing they were dead.
Here are CFPB Director Rohit Chopra’s remarks on the enforcement action: Imagine being the sort of person who gets ahead in banking and becomes a senior executive at Wells Fargo. One of your subordinates comes to you to be like “I have an idea for a new product that will attract a lot of customers and bring in a lot of revenue.” Another one of your subordinates comes to you to be like “sometimes we charge people late fees even after agreeing not to, because our systems don’t talk to each other very well; I have an idea for how to modernize them to make sure that doesn’t happen. It will cost a lot of money, but in exchange we, uh, won’t get to charge as many late fees?” Which subordinate would you want to spend more time with? Who sounds like more fun?