On Friday, the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of Currency (OCC) announced a fine of $1 billion on Wells Fargo. The bank had charged over 570,000 consumers for car insurance they didn't need and in October, it revealed that some of its mortgage loan borrowers had been inappropriately charged for missing a deadline to lock in promised interest rates, though that wasn't their fault.
According to the CFPB's consent orders, apart from paying the fine, Wells Fargo will remediate harmed consumers and undertake certain activities related to its risk management and compliance management.
“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 Mick Mulvaney, Acting Director at CFPB. “As to the terms of the settlement: we have said all along that we will enforce the law. That is what we did here.”
The bank while announcing its first-quarter results last week had said that the net income reported in the first quarter was subject to the resolutions of the CFPB/OCC matter and that its earnings performance included continued strong credit performance, liquidity, and capital levels. The bank reported a net income of $5.9 billion, which was up from $5.6 billion in the first quarter of 2017. While the bank’s revenue was down to $21.9 billion from $22.3 billion, it reported an increase in earnings per share of $1.12 compared with $1.03 in the same period last year.
Confirming the order, Wells Fargo said that the company would adjust its first quarter 2018 preliminary financial results by an additional accrual of $800 million, which is not tax deductible. "The accrual reduces reported first-quarter 2018 net income by $800 million, or $0.16 cents per diluted common share, to $4.7 billion, or 96 cents per diluted common share," Wells Fargo said in a statement.
“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,” said Timothy J. Sloan, President, and CEO of Wells Fargo. “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.”
Applauding CFPB and OCC's move, Jeb Hensarling, Chairman of the House Financial Services Committee said that the best form of consumer protection remained competitive and transparent markets that were vigorously policed for fraud and deception. “It is not enough to hold a bank accountable; the actual individuals responsible for the wrongful deeds must be held responsible as well,” he said. “I know that Wells Fargo has many dedicated employees who do serve their customers well and had nothing to do with the wrongful acts. We all look forward to the current management concluding all necessary reviews and restructuring so that Wells Fargo can once again regain the trust and respect it once had.”
Calling for steeper penalties, Maxine Waters, a Democrat Representative from California and a Ranking Member of the Committee on Financial Services said that more action was required to make banks more responsible. “It is disappointing that the OCC is today loosening the restrictions they put on the bank in 2016 and has not taken the kinds of tougher supervisory actions I have long called for, such as holding culpable executives accountable or revoking the bank’s charter,” she said. "I have been clear in the past that 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.”