Wells Fargo to pay $1 billion fine to settle federal probes of mortgage, insurance sales

Wells Fargo to pay $1 billion fine to settle federal probes of mortgage, insurance sales

The Hill

Wells Fargo will pay a $1 billion fine to settle charges the bank charged mortgage borrowers inappropriate fees and forced loan customers to purchase unnecessary auto insurance, two federal agencies announced Friday.

The Consumer Financial Protection Bureau (CFPB) announced the settlement in partnership with the Office of the Comptroller of the Currency (OCC), both of which had been investigating Wells Fargo.

“I am especially pleased that we were able to work closely and effectively with our colleagues at the OCC, and I appreciate the key role they played in the negotiations,” said acting CFPB Director Mick Mulvaney.

“As to the terms of the settlement: we have said all along that we will enforce the law. That is what we did here.”

Wells Fargo will pay a $1 billion fine, which will be deposited at the U.S. Treasury. It is also being ordered to reimburse roughly 50,000 affected customers up to $10 million. The bank must also create a committee to ensure compliance with the order and detail extensive plans to avoid similar abuses in the future.

What happened: Wells Fargo unfairly charged mortgage borrowers fees to lock in interest rates over delays that the customers did not cause.

Banks will let mortgage borrowers lock in interest rates by paying a fee to hedge against rising rates later on in the agreement. Wells Fargo would charge customers a fee to extend the period during which they could cement the interest rate if the loan did not close before a certain time frame.

Wells Fargo policy was to absorb fees to extend the interest rate lock period when the delay was not caused by the customer. But ProPublica reported in January 2017 that Wells Fargo had charged customers for fees that should have been covered by the bank.

The CFPB found that Wells Fargo employees were aware of flaws in their interest-rate lock policies, and highlighted a October 2016 internal audit revealing that Wells Fargo had “inconsistently applied its policy and charged borrowers Extension Fees in situations where [Wells Fargo] was responsible for the delay in the loan’s closing.”

The CFPB also said Wells Fargo “caused hundreds of thousands of consumers to be charged substantial premiums” for unnecessary or duplicative auto insurance. The bank had forced borrowers who used autos to secure loans to purchase insurance for the vehicle being used as collateral.

Wells Fargo had forced roughly 2 million borrowers to purchase insurance for autos used as collateral, including hundreds of thousands who already had insurance policies for those vehicles, according to the CFPB complaint.

 

Why it mattersThe fine is one of the largest penalties slapped on a single bank, and it addresses actions that could have affected up to 1 million customers. The CFPB ordered Wells Fargo to reimburse roughly 50,000 confirmed victims up to $10 million, and revealed that close to 27,000 customers might have had vehicles used as collateral repossessed because of Wells Fargo’s insurance scheme.

The action against Wells Fargo is also the largest fine levied against a bank under President Trump, who said in December that the bank should face severe penalties. The bank has been fined a total of roughly $1.2 billion since 2016, and is under strict growth restrictions from the Federal Reserve, which has targeted four Wells Fargo boardmembers for removal.

 

Lawmakers united against Wells Fargo: Former Wells Fargo CEO John Stumpf resigned in 2016, and his replacement, Tim Sloan, has vowed to right to ship. But lawmakers from both parties are calling for heads to roll.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and the panel’s ranking Democrat, Rep. Maxine Waters (Calif.), said Wells Fargo executives should be held accountable for fraudulent sales practices spanning several years.

“It is not enough to hold a bank accountable,” Hensarling said in a statement. “The actual individuals responsible for the wrongful deeds must be held responsible as well.”

Waters said “fines are not sufficient in addressing the pattern of illegal behavior by Wells Fargo, and this action still does not put the bank’s past behavior to rest. Steeper penalties are still necessary.”

 

Reactions:

  • “It was the right thing to do. The Bureau of Consumer Financial Protection enforces the consumer financial protection laws. We had believed that Wells Fargo had broken those laws, and this part of the normal course of action for our business.” — Acting CFPB Director Mick Mulvaney.
  • Fraud is fraud and theft is theft. What happened to far too many customers at Wells Fargo for far too many years cannot be described any other way.” — House Financial Services Committee Chairman Jeb Hensarling (R-Texas).
  • “To suggest this is the work of Mulvaney, who has done nothing but throw sticks in the spokes of a talented, hard-working CFPB team of devoted public servants is preposterous.” — Former CFPB Director Richard Cordray (D), taking a shot at his successor.
  • “The Bank’s failure to implement and maintain a satisfactory compliance risk management program has caused the Bank to engage in reckless, unsafe or unsound practices and violations of law.” — The Office of the Comptroller of the Currency.
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