Wells Fargo agreed to a $3.7 billion settlement with the Consumer Financial Protection Bureau over customer abuses tied to bank accounts, mortgages and auto loans, the regulator said Tuesday.
The bank was ordered to pay a record $1.7 billion civil penalty and more than $2 billion to customers with 16 million accounts, the CFPB said in a statement. The San Francisco-based company said in a separate statement that many of the “required actions” tied to the settlement were already completed.
“The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes,” the agency said in its release. “Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank.”
The resolution lifts one overhang for Wells Fargo, which has been led by CEO Charlie Scharf since October 2019. Last year, the bank told investors that it was “likely to experience issues or delays” in satisfying demands from its multiple U.S. regulators. Then, in October, the bank set aside $2 billion for legal, regulatory and customer remediation matters, igniting speculation that a settlement was nearing.
But other regulatory hurdles remain: Wells Fargo is still operating under consent orders tied to its 2016 fake accounts scandal, including one from the Federal Reserve that caps its asset growth.
Furthermore, the bank said fourth-quarter expenses would include a $3.5 billion operating loss, or $2.8 billion after taxes, from the incremental costs of the CFPB civil penalty and customer remediation efforts, as well as other legal matters. The bank is still expected to post an overall profit when it reports in mid-January, according to a person with knowledge of the matter.
The large fourth-quarter expense indicates that Wells Fargo is setting aside funds for future settlements, Jefferies analyst Ken Usdin said Tuesday in a note.
“While we do not see today’s action as having a direct read-though to the asset cap and its potential removal, we would take today’s announcement as a sign of positive progress on moving toward that ultimate goal,” Usdin said.
Shares of Wells Fargo fell more than 1% in late-morning trading.
“We and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” Scharf said in his statement. “This far-reaching agreement is an important milestone in our work to transform the operating practices at Wells Fargo and to put these issues behind us.”
While the company said it was “pleased to bring closure” to the banking, auto and mortgage issues found by the agency, CFPB Director Rohit Chopra made it clear that he didn’t consider Wells Fargo off the hook. The agreement doesn’t provide immunity to Wells Fargo employees or release claims for ongoing practices, he noted.
“While today’s order addresses a number of consumer abuses, it should not be read as a sign that Wells Fargo has moved past its longstanding problems or that the CFPB’s work here is done,” Chopra said.
The CFPB head said that regulators should consider whether limitations beyond the Fed’s asset cap and mortgage servicing restrictions needed to be imposed on the bank. The $1.7 billion fine assessed on Wells Fargo was the largest in the agency’s history, according to a senior official.
“In the CFPB’s eleven years of existence, Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise,” Chopra told reporters, rattling off a list of previous settlements.
Consumers who are still experiencing problems with Wells Fargo or other banks were encouraged to submit complaints via the CFPB website.