Wells Fargo & Co will pay $1 billion to settle with U.S. regulators who say the bank wrongly layered insurance on hundreds of thousands of drivers and routinely hit homebuyers with excessive fees, officials said on Friday.
The penalty was a record from the U.S. Consumer Financial Protection Bureau (CFPB) and comes more than eighteen months after Wells Fargo admitted it opened sham accounts for customers – a practice that likely ensnared millions.
Wells Fargo said the settlement lowers its first-quarter 2018 net income by 16 cents per share to 96 cents per share. It had flagged a possible settlement when it reported earnings last week and said then it may need to restate results.
The penalty is the first by Mick Mulvaney, whom U.S. President Donald Trump tapped in November as interim head of the CFPB, and fulfills Trump’s vow to come down hard on the country’s third-largest lender.
Mulvaney has worked to dial back the reach of the independent agency, and Reuters has reported the CFPB has dropped cases against at least two payday lenders.
“We will enforce the law,” Mulvaney said in a statement about the Wells Fargo deal. “That is what we did here.”
While the fine will sting Wells Fargo, regulators did offer the bank some relief in the settlement.
The U.S. Office of the Comptroller of the Currency (OCC), a sister regulator to the CFPB dropped Wells Fargo’s designation as “troubled” which will make it easier for departing employees to collect payouts.
Wells Fargo workers have not been able to collect all their severance without a blessing from regulators ever since a 2016 consent order regarding the phony accounts.
That check was meant to block bonuses for executives who played a part in scandal. But running those checks has taxed OCC staff and delayed payouts for some workers.
Under the agreement, the OCC will still not be able to hire new executives without a sign-off from regulators.
Wells Fargo agreed to the settlement without admitting or denying wrongdoing.
“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,” Wells Fargo president and chief executive Timothy J. Sloan said in a statement.
Taken together, the mortgage and auto programs ensnared more than 600,000 customers and will require nearly $300 million in refunds, the bank has said.
The programs allowed Wells Fargo to earn fees from unneeded car insurance and penalties on mortgage paperwork that the bank had botched.
For homebuyers, Wells Fargo promised to “rate lock” or freeze the interest rate for borrowers who got their mortgage paperwork finished within a few weeks.
When that deadline slipped and it was the bank’s fault, Wells Fargo could blame the customer. The penalty for late mortgage paperwork often topped $1000, according to a borrower lawsuit.
Drivers stung by insurance fees were wrongly pushed into policies that they did not need.
Drivers must carry auto insurance but the bank has a right to “force place” a policy on borrowers who let coverage lapse. Insurers working for Wells Fargo pushed policies onto more than 500,000 customers who already had coverage, the bank has said.
In July, Wells Fargo blamed a third-party vendor for wrongly layering insurance policies on its auto borrowers. Wells Fargo did not explain that it received payouts when those policies were written.
Reporting by Patrick Rucker in Washington