Wells Fargo is indeed facing a fine of $1 billion from a pair of federal agencies over mortgage lending and auto insurance abuses.
Earlier this week, reports emerged that the Consumer Financial Protection Bureau was seeking a “record fine” against Wells Fargo for mortgage and auto insurance issues.
A Reuters report suggested that CFPB Acting Director Mick Mulvaney was considering a fine of as much as $1 billion for the issues.
A potential fine of that magnitude seemed out of the ordinary for the CFPB under Mulvaney, considering Mulvaney’s softer approach to financial regulation compared to his predecessor, Richard Cordray.
Just this week, a different report showed that the CFPB has not initiated any enforcement actions since Mulvaney took over back in November.
But, in its first quarter earnings release, Wells Fargo confirmed that it is facing a civil penalty of $1 billion from both the CFPB and the Office of the Comptroller of the Currency.
The bank reported Friday that its net income was $5.9 billion, or $1.12 per diluted common share, for first quarter 2018. That’s up from $5.6 billion, or $1.03 per share, for first quarter 2017, and down from $6.2 billion, or $1.16 per share, for fourth quarter 2017.
Wells Fargo cautioned that its first quarter earnings may need to be restated, depending on what happens with the pending fine from the CFPB and the OCC.
“These preliminary results are subject to change due to our ongoing discussions with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency to resolve matters regarding our compliance risk management program and our past practices involving certain automobile collateral protection insurance policies and certain mortgage interest rate lock extensions, which the CFPB and OCC have collectively offered to resolve for an aggregate of $1 billion in civil money penalties,” Wells Fargo said in its earnings release. “At this time, we are unable to predict final resolution of the CFPB/OCC matter and cannot reasonably estimate our related loss contingency.”
Wells Fargo doesn’t specifically reveal which matters are the sources of the pending fine, but last year, Wells Fargo said that it planned to refund more than 100,000 borrowers who were improperly charged for rate lock extensions from Sept. 16, 2013, through Feb. 28, 2017.
According to the bank, approximately $98 million in rate lock extension fees were assessed to about 110,000 borrowers during the period.
Additionally, Wells Fargo disclosed last year that it may have wrongfully force-placed auto insurance on as many as 570,000 customers.
In each instance, Wells Fargo said that it planned to refund the affected customers.
But now, Wells is facing a massive fine from the CFPB and the OCC that would dwarf the $185 million fine issued against the bank by the CFPB and the OCC for the bank’s fake account scandal in 2016.
Outside of the potential fine, Wells Fargo reported the following financial results:
- Revenue of $21.9 billion, down from $22.3 billion last year
- Net interest income of $12.2 billion, down $86 million last year
- Non-interest income of $9.7 billion, down $235 million last year
- Average deposits of $1.3 trillion, down $2 billion from last year
- Average loans of $951.0 billion, down $12.6 billion from last year
The bank reported that its mortgage banking income was $934 million, up slightly from $928 million in fourth quarter 2017. Residential mortgage loan originations declined in the first quarter, down to $43 billion, from $53 billion in the fourth quarter.
“I’m confident that our outstanding team will continue to transform Wells Fargo into a better, stronger company; however, we recognize that it will take time to put all of our challenges behind us. During the first quarter our team members continued to focus on our vision of satisfying our customers’ financial needs and helping them succeed financially,” Wells Fargo CEO Tim Sloan said.
“We also made progress on our priority of rebuilding trust with our customers, team members, communities, regulators, and shareholders. The efforts to build a better Wells Fargo during the quarter included continuing to improve our compliance and operational risk management programs, investing in innovative products and services that enhance the customer experience including the roll-out of our digital mortgage application and predictive banking service, and increasing the minimum hourly pay rate for U.S.-based team members,” Sloan added. “In addition, we continued to make progress on our expense savings initiatives and remain on track to achieve our target of $4 billion in expense reductions by the end of 2019.”