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(Bloomberg) – Five years after scandals that have already cost Wells Fargo & Co. more than $ 5 billion in fines and legal settlements, regulators are privately signaling that they are still not happy with the progress of the bank in the compensation of victims and the strengthening of controls.
The Office of the Comptroller of the Currency and the Office of Consumer Financial Protection have warned the company that they may impose new penalties at the pace of the company in meeting those obligations, according to people with knowledge of the situation. The bank, which signed so-called consent orders with the agencies three years ago, has asked for more time to do the job, people said. It is not known when the guard dogs might proceed.
The bank’s shares erased earlier gains and fell 5.4% as of 2:40 p.m. Tuesday, its biggest drop since mid-June, after Bloomberg reported regulators’ concerns.
New sanctions would be particularly noticeable if they undermine the progress of Wells Fargo’s new management team, which took over in late 2019 to clean up the scandals that sparked the ire of lawmakers and prompted the Federal Reserve to cap growth in the economy. Bank. CEO Charlie Scharf – who joined the company after the resignation of a series of predecessors – has called the satisfaction of U.S. officials his top priority.
Spokesmen for the bank, OCC and CFPB declined to comment.
Wells Fargo has already made payments to millions of consumers, whom insiders describe as the vast majority of its victims. But on a number of fronts, the bank has struggled to identify affected customers and calculate how aggrieved they have been. Along the way, the company recruited new executives who had to upgrade.
Regulators may impose new fines or other penalties. They could also issue another consent order or replace an earlier order with a new one suitable for incomplete labor.
Alternatively, authorities could wait for an additional sanction to see how fast the bank is moving forward in response to the warnings.
Signs of behind-the-scenes discussions with authorities have surfaced in recent months. In regulatory files, Wells Fargo warned it could face new penalties related to the 2018 consent orders. But it did not elaborate on the underlying issues.
And in public remarks to investors, Scharf and his team predicted there could be “setbacks” as they seek to meet the demands of settlement agreements with the government.
“While it is clear what is required for each one, there are many complexities in managing this amount of work at the same time,” Scharf told analysts on a conference call in July, adding that the company was making “significant progress.” by most measurements. “It will take time to achieve everything in a consistent manner to the level that we and our regulators expect. “
Returned cars
The Wells Fargo scandals began to erupt in September 2016, triggering leadership upheavals that culminated in a six-month search for a skilled outsider ready to tackle the bank’s woes. Scharf is now approaching his second birthday as the head of the company, time he has spent reshaping management and examining the problems of the company. This team inherited a puzzle.
In the most famous banking scandal, for example, employees trying to meet aggressive sales targets opened accounts for millions of customers without authorization. The accounts weren’t exactly labeled as “fake” in internal systems, and the fallout was hardly limited to a few additional fees. In some cases, credit scores have been damaged, potentially leading to higher borrowing costs when people applied for loans later.
And then there are the abuses in other key business areas – such as mortgages and automobiles – that the OCC and CFPB have highlighted in the consent orders while imposing $ 1 billion in funding. fines. Under the settlement, the company not only promised to fix its systems, but also to treat the victims – a complex task.
Wells Fargo said it has billed hundreds of thousands of car buyers for insuring their vehicles, even though they have their own coverage. Regulators found that the problem spanned more than a decade, and from 2011 to 2016, the extra costs may have pushed around 27,000 borrowers into default, causing them to lose vehicles in repossession cases. .
It can be intimidating knowing who had their own insurance years ago, which of those borrowers got defaulted by the bank’s fault, and how much it ultimately cost them. Insurance reimbursement laws also vary from state to state.
Aging software
Over the past five years, Wells Fargo has recognized problems in just about every major industry serving consumers. The bank has attempted to address more than 100 different regulatory issues, according to people with knowledge of the situation.
The job has been complicated over the years by internal disagreements over how to calculate damage, as well as aging software, record-keeping issues and the bank’s past dependence on third parties, the people said, asking not to be appointed to discuss internal issues.
At the end of 2018, Joseph Otting, then controller of the currency, told the Senate Banking Committee that the company was still “framing” its analysis of the financial damage inflicted.
Certainly, there have been signs of progress since Scharf took over. Earlier this year, Bloomberg reported that the Fed had confidentially agreed to a plan to overhaul risk management and governance – the second in four steps to get out of the ban on growth. The company was also released from a 2015 regulatory order related to violations of anti-money laundering rules in January.
Yet Wells Fargo has remained a bipartisan punching bag across three White House administrations, with politicians from Democratic Senator Elizabeth Warren to Republican President Donald Trump taking swings. Such scrutiny has also extended to regulators, making them less inclined to show leniency to Wells Fargo.
(Updated reaction of actions in third paragraph.)
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