Wells Fargo, the largest depository mortgage lender in America, has agreed to pay a civil penalty of $1.7 billion to settle multiple consent orders related to automobile lending, consumer deposit accounts and mortgage lending with the Consumer Financial Protection Bureau (CFPB).
According to the CFPB, the bank repeatedly misapplied loan payments, wrongfully foreclosed on homes, illegally repossessed vehicles and charged surprise overdraft fees, affecting 16 million customers’ accounts. Consequently, the bank will also pay more than $2 billion in redress to consumers.
“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” CFPB’s director Rohit Chopra said in a statement. “The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.”
In practice, the bank entered into a new consent order, which lays out a path to termination after the company completes the remainder of the required actions.
“We and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” Charlie Scharf, Wells Fargo’s CEO, said in a statement. “We have made significant progress over the last three years and are a different company today.”
The settlement includes the termination or expiration of four consent orders issued since 2020 regarding add-on products that the bank sold to retail customers before 2015; anti-money laundering compliance program; retail sales practices; and violations of the Real estate Settlement Procedures Act. The CFPB is also terminating a consent order from 2016 related to student loan servicing.
The bank said that, since 2019, it has made changes to its operations, which include, among others, splitting from three to five business groups, creating four new enterprise functions, establishing a new control management program and launching the office of consumer practices.
But, solving these matters will impact the bank’s fourth-quarter earnings, expected to be reported on January 13, 2023. Wells Fargo will be hit by an “operating losses expense” of approximately $3.5 billion in the fourth quarter related to the CFPB civil penalty and customer remediation, among other things.
In the mortgage business, the CFPB claims that Wells Fargo, during at least seven years, improperly denied mortgage modifications to thousands of borrowers, which in some cases led customers to lose their homes to wrongful foreclosure.
The CFPB said Wells Fargo was aware of the issue for years before it addressed the problem.
Wells Fargo, the largest mortgage servicer in the country, originated $21.5 billion in mortgage loans in the third quarter of 2022, a 37% decline quarter-over-quarter. Refinancings fell to 16% of the mix. The bank imposed several layoffs on its mortgage employees, including cutting hundreds of jobs in December.