Wells Fargo fined $1 billion for abusive consumer loans

Wells Fargo (WFC) will pay $1 billion to settle federal charges into consumer abuses related to its auto lending and mortgage businesses, the U.S. government said Friday.

The action comes less than two years after Wells was fined nearly $200 million for illegally opening millions of phony deposit and credit card accounts.

Wells Fargo violated the law in how it charged fees over locking in mortgage interest rates beyond the standard guaranteed window, and by operating a mandatory insurance program that increased insurance costs and fees for some borrowers' auto loans, possibly contributing to thousands of cars being repossessed, the Consumer Financial Protection Bureau said. 

The bank's "conduct caused and was likely to cause substantial injury to consumers," the agency said in a consent order. 

In the case of mortgage loans, Wells charged some customers for the rate extension, even when the bank caused the delays in closing on a home loan. The practices occurred from September 2013 through February of 2017, and continued even after an internal audit by Wells found the danger to consumers, the CFPB said.

"We have said all along that we will enforce the law," Mick Mulvaney, acting director of the CFPB, said in a statement. "That is what we did here."

The fine is the largest bank penalty administered under the Trump administration and is the biggest in the history of the CFPB, which has not announced any new enforcement cases under Mulvaney, who also heads the Office of Management and Budget and who began overseeing the CFPB in November. 

President Donald Trump weighed in on Wells' conduct in December, declaring on Twitter that he would cut bank regulations but "make penalties severe when caught cheating."

The CFPB was created in 2010 under the Dodd-Frank financial reform law and Mulvaney, a former Republican House member and longtime critic of the CFPB, has come under fire from Democrats for rolling back the bureau's work.

That criticism continued in the wake of Friday action. "Mulvaney has spent nearly five months working to undermine the consumer bureau from the inside," California Democrat Maxine Waters, the ranking member of the House Financial Services Committee, said in an emailed statement. "He has taken a series of actions to help out payday lenders, gutted the Office of Fair Lending and Equal Opportunity, scaled back enforcement actions, and asked Congress to further weaken the consumer bureau," she added.

The sentiment was reiterated by consumer advocates, who voiced concern that Mulvaney's efforts to ease investigations into the financial industry would undermine the CFPB's future work. "You can't stop lawbreakers if you aren't looking for them," Pamela Banks, senior policy counsel for Consumers Union, said in a statement. 

"While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them," Wells CEO Tim Sloan said in a separate statement. 

Sloan took the top position at Wells after the bank's scandals started blowing up in 2016.

Friday's action came in coordination with the Office of the Comptroller of the Currency (OCC), which said Wells Fargo had failed to maintain adequate risk management controls since at least 2011.

"The bank's failure to implement and maintain a satisfactory compliance risk management program has caused the bank to engage in reckless unsafe or unsound practices and violations of law," the OCC said in a consent decree issued as part of the settlement. 

Wells last week released preliminary results for the first quarter, reporting $5.53 billion in net income. However, the bank also reported a $800 million charge related to its legal hurdles, cutting net income to $4.7 billion. 

Wells' long-running troubles came into the public's view in September 2016, when it was fined $185 million for opening millions of accounts without the consent of customers. The disclosure led to the resignation of John Stumpf as CEO.

The Federal Reserve in February pointed to "widespread consumer abuses and other compliance breakdowns by Wells" in determining the bank could not grow beyond where it stood at the end of 2017 until it addresses the problems.

The settlement removes one cloud hanging over the bank, but it remains unclear whether "additional wrongdoing will be found," wrote Keefe, Bruyette & Woods analysts Brian Kleinhanzl and Michael Brown in a client note.