Wells Fargo to Pay $1 Billion to Settle Risk Management Claims -- 4th Update

By Yuka Hayashi 

WASHINGTON -- Regulators levied the largest banking fine of the Trump era against Wells Fargo & Co. on Friday over claims of misconduct in its auto and mortgage lending businesses, the latest in a series of regulatory woes for the bank.

The $1 billion settlement with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency concerned the bank's failures to catch and prevent problems, including improper charges to consumers in its mortgage and auto-lending businesses.

The fine is a signal that while officials are working to ease postcrisis regulatory rules, they won't let companies off the hook for misconduct.

"We have said all along that we will enforce the law. That is what we did here," CFPB acting director Mick Mulvaney said.

As part of the settlement, the bank also agreed to offer restitution to customers and improve risk and compliance management practices.

The OCC ordered the bank to develop and submit a compensation plan for affected customers within 120 days. The amount of customer restitution hasn't yet been determined and would be separate from the penalty.

"The OCC took these actions given the severity of the deficiencies and violations of law, the financial harm to consumers, and the bank's failure to correct the deficiencies and violations in a timely manner," the OCC said.

The regulator added that it "found deficiencies in the bank's enterprisewide compliance risk management program that constituted reckless, unsafe or unsound practices."

The settlement covers the bank's practices in two main areas: charging improper fees for rate-lock extensions in mortgage lending and selling unnecessary insurance coverage to auto-loan customers. Overcharges linked to the sale of unnecessary auto insurance could have contributed to defaults that resulted in vehicle repossessions for at least 27,000 customers, the settlement said.

Between 2011 and 2016, "hundreds of thousands" of auto-loan consumers were charged substantial insurance premiums, typically just over $1,000 a policy, for unnecessary insurance coverage, it said. The CFPB said Wells Fargo has already discontinued the insurance practice.

"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," said Timothy J. Sloan, president and chief executive of Wells Fargo.

The settlement also requires the bank to receive approval from the OCC before appointing any senior executive officers or directors, or making payments to certain senior employees.

The San Francisco-based bank has faced a number of regulatory woes in recent years, including scrutiny of illegal sales practices that involved the opening of as many as 3.5 million accounts without customers' consent that led to a $185 million fine. Regulators have since probed the bank's practices in auto lending, mortgages, wealth and investment management and foreign exchange.

As a result of the fine announced Friday, Wells Fargo restated its first-quarter earnings, lowering its net income to $4.7 billion, or 96 cents a diluted share, a reduction of $800 million, or 16 cents a diluted share, from previously reported figures.

Wells Fargo disclosed last week that the regulators had offered to resolve civil investigations for $1 billion.

Friday's announcement is one of several recent regulatory actions against the bank. In February, the Federal Reserve took an unprecedented enforcement action that barred the bank from growing past the $1.95 trillion in assets it had at the end of 2017. The Fed cited "widespread consumer abuses" in its rebuke.

Mortgage-lending violations involved Wells Fargo's failure to honor interest-rate lock agreements with customers, the government said in the settlement, leading to some customers being improperly charged to extend locks.

In auto lending, regulators said the bank required some 2 million borrowers to purchase insurance covering vehicle damage even when customers already had adequate coverage. More than a quarter of policies were later found duplicative and canceled. The bank has refunded some but not all of the fees associated with the program.

Of the $1 billion fine, $500 million will be paid to the OCC and the rest will be deposited in the CFPB's civil penalty fund. Money from that fund covers consumer education and financial literacy programs, in addition to helping consumers who have not received adequate compensation.

--Ryan Tracy contributed to this article.

Write to Yuka Hayashi at [e-mail]

(END) Dow Jones Newswires

April 20, 2018 14:45 ET (18:45 GMT)

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