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Wells Fargo has agreed to pay $3.7 billion to settle allegations by federal regulators that it harmed millions of consumers over a period of several years through widespread mismanagement of mortgages, auto loans and deposit accounts.
The settlement with the Consumer Financial Protection Bureau (CFPB) announced Tuesday, requires Wells Fargo to pay more than $2 billion in consumer restitution and a $1.7 billion civil penalty for alleged legal violations across several of its largest product lines.
“Wells Fargo is a repeat offender that has been the subject of multiple enforcement actions by the CFPB and other regulators for violations across its lines of business, including faulty student loan servicing, mortgage kickbacks, fake accounts, and harmful auto loan practices,” the CFPB said in a press release.
The CFPB alleged that for at least seven years, Wells Fargo improperly denied thousands of mortgage loan modifications, in some cases leading customers to lose their homes.
“The bank was aware of the problem for years before it ultimately addressed the issue,” the CFPB said.
Wells Fargo last year agreed to pay a $250 million fine to another federal regulator, the Office of the Comptroller of the Currency, which also found fault with the bank’s practices for helping homeowners who are having trouble paying their mortgages.
Wells Fargo CEO Charlie Scharf acknowledged “unacceptable practices” that the company has been working to put behind it.
Charles Scharf
“We have made significant progress over the last three years and are a different company today,” Scharf said, in a statement. “We remain committed to doing the right thing for our customers and working closely with our regulators and others to deal appropriately with any issue that arises.”
Wells Fargo said it expects to report a $3.5 billion fourth-quarter operating loss on Jan. 13 after factoring in “the incremental costs of the CFPB civil penalty and related customer remediation as well as amounts related to outstanding litigation matters and other customer remediation.”
The settlement requires Wells Fargo to pay:
- Nearly $200 million in consumer redress for affected mortgage clients
- More than $1.3 billion in consumer redress for affected auto lending accounts
- More than $500 million in consumer redress for affected deposit accounts, including $205 million for surprise overdraft fees.
In conjunction with the settlement, the CFPB is terminating a 2016 consent order governing Wells Fargo’s collection of payments on student loans.
Wells Fargo said the CFPB has also provided “clarity and a path forward” for termination of a 2018 consent order that identified unfair practices in mortgage interest rate locks and forced placed insurance on auto loans.
Once the nation’s biggest provider of home loans, Wells Fargo has seen its market share erode as rising interest rates and a shrinking branch network cut into the bank’s mortgage business.
Bloomberg reported in August that Wells Fargo was eyeing a “major retreat” from mortgage lending that would include scaling back or shutting down its correspondent lending channel, with executives reportedly concerned about the financial and reputational risk of buying mortgages from third parties.
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