Wells Fargo Fined $1 Billion for Auto Loan, Mortgage Abuses

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Summary: Wells Fargo was fined $1 billion by the government for an auto loan insurance and home loan scheme. 

On Friday, the Office of the Comptroller of the Currency not only slapped troubled bank Wells Fargo with a fine, but it also gave itself the right to remove key leaders from the company.

  

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“CEOs who hoped the Trump administration would be universally lenient regulators missed the difference between a dislike for rules that stifle innovation and employment and a dislike for rules against wrongdoing,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Bloomberg.

The US government probed Wells Fargo on auto loan and mortgage abuses, and they fined the bank $1 billion. Bloomberg said that this fine was the biggest sanction against a bank under President Donald Trump.

In addition to the fine, the OCC “reserves 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” and it also reserves to right to approve potential replacements.

Last week, Wells Fargo warned shareholders that a penalty was coming, and on Friday, the OCC and the Consumer Financial Protection Bureau made an announcement that they reached a settlement for the Wells Fargo scheme that they admitted to last year.

Wells Fargo revealed that it has forced unwanted insurance on auto loan customers and had imposed inappropriate charges for consumers who wanted to lock interest rates on home loans.

According to NPR, “The CFPB said problems with the auto loan unit persisted for more than 10 years, from October 2005 to September 2016. Lenders can require borrowers to maintain insurance on their vehicles — and if a borrower doesn’t do that, there is a process that allows lenders to arrange for what is called force-placed insurance and add that cost to the loan. But Wells Fargo acknowledged that of the roughly 2 million car loans that it put into that program, it “forcibly placed duplicative or unnecessary insurance on hundreds of thousands of those borrowers’ vehicles.””

This is not the only scandal that Wells Fargo has been embroiled in recently. The bank was also caught creating fake accounts using real customers’ data in order to collect fees and meet employee sales quotas, and they were also accused of giving black and Latino loan seekers higher mortgage rates. 

CEO Tim Sloan, who took office in 2016 after the previous CEO John Stumpf was ousted, promised to overhaul the bank and rebuild public trust. After an internal investigation, the company discovered that the number of grievances from the fake account scandal was even worse than previously accounted for.

“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 as we deliver our commitments with focus, accountability, and transparency,” Sloan told Bloomberg.

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