Internal memo on CFPB’s investigation into Wells Fargo fake accounts made public

House Financial Services Committee Republicans say CFPB rushed to settle case

Wells Fargo isn’t the only one getting investigated after the mega bank’s massive fake account scandal was uncovered. Republican politicians are pointing a finger back at the government agency that levied the $100 million fine against Wells Fargo, saying the agency rushed to settle the case against Wells Fargo without investigation.

The House Financial Services Committee, led by Chairman Jeb Hensarling, R-Texas, released a second interim staff report on Tuesday on its investigation into the Wells Fargo fraudulent account scandal and the Consumer Financial Protection Bureau’s enforcement action on the matter.

This second interim staff report included an internal CFPB “Recommendation Memorandum” for Director Richard Corday, which has never been made public until now.

The committee claimed in its report that the bureau “improperly withheld” the letter from the committee for more than a year and “reveals the bureau failed to fully and adequately investigate Wells Fargo.” 

The committee also claimed that the CFPB could have sought a penalty 10 times larger than the $100 million fine it handed down against Wells Fargo.

The committee’s announcement stated, “The Memorandum shows that the CFPB estimated that the bank was potentially liable for a statutory monetary penalty exceeding $10 billion. This penalty could potentially be increased further, CFPB enforcement attorneys noted, if CFPB determined whether the fraudulent behavior was reckless or knowing, as opposed to negligent, or if the CFPB discovered additional fraudulent behavior not yet reported or violations of other statutes.”

Since Cordray approved a settlement with Wells Fargo bank for only $100 million, the committee’s main argument is that Cordray rushed to settle and significantly slashed the fine Wells Fargo deserved.

The Recommendation Memorandum, found here, offers much more information on what Wells Fargo’s penalty should be and what Cordray was advised.

Here’s the first section on the suggested penalty:

But even if we were to calculate only a first-tier penalty for each of Wells Fargo’s more than 2 million violations, the penalty could exceed $10 billion before considering any mitigating factors. Among the mitigating factors we must consider are the size and good faith of the subject, the gravity of the violations, the severity of the risks to or losses suffered by consumers, the history of previous violations, and “such other matters as justice may require.”

Those factors do not justify significantly reducing the penalty here. Wells Fargo is one of the world’s largest banks. Last year, it earned $86.1 billion in net revenue and a $22.9 billion profit; it finished the year with more than $1.8 trillion in total assets. While the amount of known consumer harm is only a few million dollars, the severity of the risks to consumers is demonstrated by the pervasiveness of the violations: the bank opened millions of deposit and credit-card accounts without consumers’ consent, affecting more than a million consumers.

The key part to highlight is the first line, which says, “But even if we were to calculate only a first-tier penalty for each of Wells Fargo’s more than 2 million violations, the penalty could exceed $10 billion before considering any mitigating factors.”

In the next section in the letter, it outlined what actions Cordray should take, seen below:

Although applying these statutory provisions could potentially justify a multi-billion dollar penalty, the CFPA allows the Bureau to compromise or modify a penalty before it is assessed, and we recommend doing so here to help resolve this case. Accordingly, we recommend settling this matter for a penalty of at least $100 million. A penalty in that amount would sufficiently deter similar violations and would impress upon the bank the need to review its incentive-compensation program and to better monitor its effect on bank employees in the future. But we also believe that a lower penalty would not suffice, as the bank has consistently demonstrated that it has failed to appreciate the gravity of what has occurred.

In this part, the letter recommends settling the matter for a penalty of at least $100 million.

While Cordray did follow the $100 million recommendation, it was the minimum fine suggested.

Interestingly enough, when the Wells Fargo investigation first broke back in September 2016, the announcement said the CFPB said that the fine was the largest in its history, for the "widespread unlawful" practices of former Wells Fargo employees who opened more than 2 million fake accounts to get sales bonuses.

But nearly a year later, an internal investigation at Wells Fargo revealed that the bank’s fake account scandal was a much larger issue than anyone thought. As it turns out, the number of potentially fake accounts was actually 3.5 million – 1.4 million more than first thought.

That’s significantly more fake accounts than what was originally known. To House Republicans, this information is enough to show Cordray failed to properly investigate Wells Fargo.

Rep. Ann Wagner, R-Mo., chairman of the Oversight and Investigations Subcommittee, said, “Today’s report confirms what everyone already knew — the CFPB lacks accountability and oversight. While everyday Americans suffered at the hands of Wells Fargo, Director Cordray evaded the truth before Congress and the CFPB settled for pennies on the dollar after being caught asleep at the wheel. Additionally, this second Interim Majority Staff Report confirms that the CFPB is willfully obstructing this Committee from conducting our oversight responsibilities.”

The first staff report, which came out back in June, carried similar calls against the bureau, even urging lawyers to prepare for possible contempt proceedings against the director should they prove necessary.

In the first report, Republican staff for the House Financial Services Committee alleged that Cordray didn’t comply with the committee’s request for records to help its probe.

Both the first and second reports claim that the “committee remains unable to complete its investigation of the Wells Fargo fraudulent account scandal because Director Cordray remains in default of the Committee’s April 2017 subpoena.”

“The CFPB’s handling of this matter and its refusal to fully comply with the Congressional subpoena are a slap in the face to millions of Americans who were harmed by Wells Fargo and further evidence of the CFPB’s unaccountable structure and leadership,” Hensarling said in a statement. “The premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.” 

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