The CFPB's Latest Wells Fargo Enforcement Action
Three quick observations
This morning the CFPB announced that it has reached a settlement agreement with Wells Fargo Bank under which Wells Fargo will “pay more than $2 billion in redress to consumers and a $1.7 billion civil penalty for legal violations across several of its largest product lines.” This is consistent with or even goes beyond reporting from Bloomberg in early November that the CFPB was demanding that Wells Fargo pay a “record fine exceeding $1 billion.”
Three things jumped out to me when reading the order and related press releases.
Is Wells Fargo Making Progress?
Wells Fargo issued a pretty upbeat press release this morning that, although acknowledging further work to be done, says that today’s settlement represents an “important milestone in our work to transform the operating practices at Wells Fargo.” Much of the credit for this, according to Wells Fargo, is attributable to current leadership:
Current leadership has made significant progress to transform Wells Fargo; in fact, the CFPB recognized that since 2020, the company has accelerated corrective actions and remediation, including to address the matters covered by today’s settlement.
Wells Fargo also in its press release provides a list of now-closed consent orders as further evidence that “Wells Fargo has made significant progress in strengthening its risk and control infrastructure over the past several years.”
It is not clear that the CFPB fully agrees.
On the one hand, the settlement agreement does say, consistent with the Wells Fargo press release, that Wells Fargo has “accelerated corrective actions” and remediation since 2020.
On the other hand, the consent order says that certain bad conduct continued “through 2022” and CFPB Director Chopra released prepared remarks this morning that appear to doubt some of Wells Fargo’s claims about progress:
Over the past several years, Wells Fargo executives have taken steps to fix longstanding problems, but it is also clear that they are not making rapid progress. We are concerned that the bank’s product launches, growth initiatives, and other efforts to increase profits have delayed needed reform.
CFPB Considering Additional Limitations
In light of what he sees as insufficiently rapid progress and delayed reforms, Director Chopra says the CFPB intends in 2023 to work with the federal banking regulators to determine whether additional restrictions on Wells Fargo would be appropriate.
As regulators, we must collectively consider whether additional limitations need to be placed on Wells Fargo to supplement the existing asset cap put in place by the Federal Reserve Board of Governors in 2018, as well as the Office of the Comptroller of the Currency’s mortgage servicing restrictions imposed in 2021. Our nation’s banking laws provide strong tools to ensure that insured depository institutions do not breach the public trust, and in the new year we expect to work with our fellow regulators on whether and how to use them.
It is not clear from Director Chopra’s statement which of these “strong tools” he intends to explore, but a speech from Director Chopra earlier this year regarding repeat offenders may be instructive as to what current CFPB leadership believes should at least be on the menu of options.
Under our authorizing statute, the CFPB may seek “limits on the activities or functions” of a firm for violations of laws, regulations, and orders. […] While many government regulators have sought such limitations on small businesses, they have shown less willingness to do so with larger and more powerful firms. This needs to change.
First: Caps on size or growth. […]
Second: Bans on certain types of business practices. […]
Third: Divestitures of certain product lines. […]
Fourth: Limitations on leverage or requirements to raise equity capital. […]
Fifth: Revocation of government-granted privileges. […]
For repeat offenders that are insured depository institutions, they can lose access to federal deposit insurance or their ability to continue operating. For example, regulators should assess whether it is appropriate to terminate or limit access to FDIC deposit insurance or to put banks directly into receivership. Congress specified that institutions that are unsafe and unsound may be subject to losing access to FDIC deposit insurance or their ability to stay in business.
Some of those consequences, particularly in the final paragraph, are quite drastic, and I would be surprised if the federal banking regulators had the appetite to seriously consider them here.
One thing I wonder about in relation to the above, though, is the degree to which Director Chopra believes the CFPB can go it alone. Many of the consequences Director Chopra laid out in March (such as a requirement to raise capital) would require action by the federal banking regulators. But as you can see at the start of the block quote above, Director Chopra also asserts that CFPB has the power, on its own, under Section 1055 of the Dodd-Frank Act to impose limits on activities or functions. If the interagency discussions Director Chopra wants to have in 2023 do not produce outcomes he regards as appropriate, could the CFPB pursue further action on its own?
Path to Closing 2018 Consent Order
Finally, there was one other interesting thing in the Wells Fargo press release not mentioned explicitly in the CFPB’s order, the related stipulation, or Director Chopra’s prepared remarks.
In the first line of its press release, Wells Fargo says that the CFPB today provided “a path forward for termination of 2018 consent order.” A few paragraphs later, Wells Fargo says “[i]n addition, the CFPB is clarifying how and when its April 20, 2018 consent order will terminate.”
I was confused by this at first, but think I figured out.
In 2018, Wells Fargo entered into a consent order with the CFPB under which the CFPB imposed a then-record fine of $1 billion (including a credit of $500 million paid to the OCC). The 2018 consent order also requires Wells Fargo to “undertake certain activities related to its risk management and compliance management.”
Paragraph 92 of the 2018 consent order provided as follows:
The Consent Order will remain effective and enforceable, except to the extent that any provisions of this Consent Order have been amended, suspended, waived, or terminated in writing by the Bureau or its designated agent.
Today, though, when I went to grab a copy of the 2018 consent order, I noticed that the CFPB has updated the page to note that the 2018 consent order was modified on December 20, 2022. According to the modification, Paragraph 92 of the 2018 consent order now reads as follows:
Unless earlier terminated in writing by the Bureau or its designated agent, this Order will terminate on the earlier of: (i) 180 days after the date on which Respondent confirms in writing that it has completed all committed actions under the 2018 Order, unless the Bureau indicates in writing prior to the running of the 180 days that Respondent has not completed all committed actions to its satisfaction; or (ii) three years from the date of the Modification of the Consent Order. The Consent Order will otherwise remain effective and enforceable until such time, except to the extent that any provisions of the Consent Order have been amended, suspended, waived, or terminated in writing by the Bureau or its designated agent.
So, certainly a more definitive path forward than as compared to paragraph 92 in the 2018 order. But still leaving much to the CFPB’s discretion.
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