San Francisco-based financial services firm; Wells Fargo & Company is facing pressure to pay more than $1 billion as a settlement for the mistreatment of its customers by the Consumer Financial Protection Bureau. The series of investigations that may lead the company to pay would break the previous record, ironically held by Well Fargo itself.
According to people, the CFPB’s demand with the bank reflects its growing frustration. Wells Fargo has been penalized several times for abuse in the past six years. Rohit Chopra, the CFPB director, said they would increase sanctions across the board in March, especially on repeat offenders, and even limit them to conduct certain businesses.
Contingent Liability Provision
In a filing last week, Wells Fargo said the talks with CFPB include consumer deposit accounts, automobile, and mortgage lending without disclosing the size of the potential penalty. The financial services company has provided $2 billion in QTR 3 to cover legal and regulatory expenses, including compensating affected customers.
CEO Charlie Scharf, who joined Wells Fargo in 2019, has been trying to resolve a spate of scandals in 2016 when it was revealed that the bank had opened millions of fake accounts. Problems erupted between business verticals that resulted in CEOs getting sacked and penalties that included the capping of banks’ assets by the Federal Reserve. Scharf warned that the provision set aside in the third quarter is not the last and end of it.
According to informed sources, the settlement with CFPB is not imminent and not likely to be announced in November, as the discussions are still private. Chopra has promised to make the penalty for large companies painful, and the agency may also restrict certain activities in addition to the financial penalty.
The talks could stop as Wells Fargo is also aiming to resolve many concerns of CFPB and provide relief to the shareholders. The punishment for the bank by CFPB has been going up in recent years.
In 2016, the bank opened accounts for customers without their permission, and in the process, they had to pay a fine of $100 million. In 2018, CFPB levied a $1 billion penalty for other misconducts but later had $500 million credit for a current settlement with the Washington-based OCC Office of the Comptroller of the Currency.
Pressure before Midterm Elections
Chopra is appointed by the US President and is under pressure from the Democrats to strengthen the consumer watchdog agency. As per the Democratic Party, the watchdog has pulled back from its earlier tougher stand and policy enforcement prevalent during President Trump’s tenure.
According to Chopra, the habit of corporate noncompliance has been repeated and normalized by banks as a cost of doing business. He said that the agency would address this issue of repeat law-breaking by corporates and alter this behavior. The idea is to make them realize that it is cheaper to do business and have better profits doing business with the law rather than breaking it.
