Over the last few years, Wells Fargo has paid out nearly $2 billion in fines and settlements covering a myriad number of issues, most notably opening millions of fake accounts in customers’ names. That issue led to hundreds of millions of dollars in payouts to regulators, affected customers, and shareholders over the affair.
But it looks like Wells Fargo isn’t done paying its penance for the fake account scandal quite yet.
Wells Fargo revealed Tuesday that it set aside another $1.6 billion during the third quarter as a “discrete litigation accrual for previously disclosed retail sales practices matters.”
The bank does not reveal what specifically the money is being set aside for, but the bank’s language seemingly indicates that another settlement or regulatory action is on the horizon.
The bank revealed the potential payout as part of its third-quarter earnings release. According to the bank, its net income was $4.6 billion in the third quarter, down from $6 billion in the same time period last year and $6.2 billion in the second quarter of this year.
One of the main drivers of that decrease was the bank’s booking of that $1.6 billion for those “previously disclosed retail sales practices matters.”
“Retail sales practices matters” is how Wells Fargo refers to the fake account situation, as the bank’s employees were both encouraged and rewarded to “sell” additional banking products to their customers.
That policy led to 5,000 Wells Fargo employees opening two million fake accounts in order to receive sales bonuses, which led to a $150 million fine by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the city and county of Los Angeles.
But that was just the beginning of Wells Fargo’s troubles.
The bank later inked a $142 million settlement with the affected customers, as well as a $480 million settlement with a group of shareholders who accused the bank of making “certain misstatements and omissions” in the company’s disclosures about its sales practices.
It was later revealed that the bank’s troubles extended beyond the company’s sales practices.
Wells Fargo later paid out millions for overcharging military veterans on their mortgages, improperly denying mortgage modifications to borrowers facing foreclosure, potentially wrongfully force-placing auto insurance on more than half a million customers, and other issues.
But those fines and settlements paled in comparison to the action taken by the CFPB and the OCC against the bank in April 2018, when the regulators fined the bank a total of $1 billion for those auto insurance issues along with charging mortgage borrowers for interest rate lock extensions.
But the CFPB may not be done with Wells Fargo yet.
Earlier this year, CFPB Director Kathy Kraninger told top Senate Democrats that she is unhappy with Wells Fargo’s lackluster attempt to correct its risk management issues and that she is considering her options when it comes to the consequences.
“I am not satisfied with the bank’s progress to date and have instructed staff to take all appropriate actions to ensure the bank complies with the consent order and Federal consumer financial law,” Kraninger wrote in a letter to Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio. “Broadly speaking, I consider all options on the table for enforcing Bureau consent orders.”
So it’s entirely possible that the $1.6 billion booked by Wells Fargo could be for additional action by the CFPB, but the wording of “discrete litigation accrual for previously disclosed retail sales practices matters” implies that the money is being set aside for settling a lawsuit.
The bank may reveal more information about the accrual when it files its 10-Q quarterly filing with the Securities and Exchange Commission in the coming days, as is customary when public companies report their quarterly earnings.
Either way, the looming payout will likely go on the ledge of new Wells Fargo CEO Charles Scharf, former chairman and CEO of Bank of New York Mellon, who is set to take over at Wells Fargo next week.
Scharf will be the bank’s fourth different CEO in the last three years.