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Wells Fargo agrees to record $1 BILLION penalty

Sioux Falls, SD
04/20/2018
Fine Amount: 
$1,000,000,000
Penalty Type: 
Issued by: 

Wells Fargo Bank, N.A. has reached a settlement with the CFPB and the OCC, agreeing to reimburse consumers harmed by the bank's administration of a mandatory insurance program related to automobile loans and by how the bank charged some borrowers for mortgage interest rate-lock extensions. The CFPB's press release says that Wells Fargo will remediate harmed consumers and undertake certain activities related to its risk management and compliance management. The Bureau assessed a $1 billion penalty against the bank and credited a $500 million penalty collected by the OCC toward the satisfaction of its fine.

The OCC's press release reports that the bank's actions were unsafe or unsound, and that it has ordered the bank to make restitution and to develop and implement an effective enterprise-wide compliance risk management program. The OCC reserved 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 OCC's order also modifies restrictions placed on the bank in 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. 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.

The OCC found (and the bank neither admits not denies) that:

  1. Since at least 2011, the Bank has failed to implement and maintain a compliance risk management program commensurate with the Bank’s size, complexity and risk profile. 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.
  2. In the course of its ongoing supervision of the Bank, the OCC has identified the following deficiencies and reckless unsafe or unsound practices with respect to the Bank’s compliance risk management program:
    (a) Failure to establish effective first and second lines of defense as required by 12 C.F.R. Part 30, Appendix D and insufficient compliance audit;
    (b) Inability to execute on a comprehensive plan to address compliance risk management deficiencies;
    (c) Failure to fill mission-critical staffing positions for Wells Fargo Compliance, formerly known as the Regulatory Compliance Risk Management unit, with individuals who possess the requisite knowledge, skills, and abilities to perform assigned duties;
    (d) Failure to implement a reliable compliance risk assessment and testing program;
    (e) Inadequate reporting to the Board regarding compliance concerns, the regulatory landscape, and the Bank’s efforts to correct its compliance problems and address regulatory changes; and
    (f) Failure to adequately develop and implement key elements of its compliance risk management program designed to ensure that the Bank addressed risks related to potential unfair or deceptive acts or practices since 2014.
  3. With respect to its enterprise-wide compliance risk management program, the Bank has previously identified and reported to the OCC certain of the deficiencies that are described in this Order. The Bank has begun corrective action, and has committed to taking all necessary and appropriate steps to remedy the deficiencies identified by the OCC and to establish an effective compliance risk management program.
  4. In addition to the reckless unsafe or unsound compliance risk management practices outlined in Paragraph (2) above, 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. 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.
  5. As a result of the Bank’s improper CPI placement practices, borrowers were improperly charged CPI premiums, interest, and fees, and suffered loan delinquencies due to increased loan payment amounts. In some cases, the Bank improperly repossessed vehicles from borrowers who had defaulted on their loans due to improperly placed or maintained CPI policies.
  6. The Bank’s aforementioned practices with respect to CPI constituted unfair acts or practices in or affecting commerce in violation of the unfair acts or practices provision of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1), and were unsafe or unsound.
  7. Beginning in at least September 2013 and continuing through March 2017, it was the Bank’s policy that if (a) a mortgage loan application did not close within its initial interest rate lock period in circumstances where the Bank was responsible for the failure of the loan to close and (b) the customer chose to extend the interest rate lock period, the extension fee was to be charged to the Bank, and not the customer. However, 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.
  8. 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. The Bank’s mortgage interest rate lock extension fee practices constituted unfair acts or practices in or affecting commerce in violation of the unfair acts or practices provision of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1), and were unsafe or unsound.
  9. By reason of the foregoing conduct, the Bank engaged in reckless unsafe or unsound practices and violations of law that were part of a pattern of misconduct, and was unjustly enriched.

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