WASHINGTON–Wells Fargo has been hit with a hard—and unusual—penalty by the Federal Reserve–it will not be permitted to grow until it cleans up its act.
In one of her last official acts as Federal Reserve Chair, Janet Yellen announced restrictions have been placed on the bank for an ongoing, continued pattern of ethical and legal abuses of its customers. As CUToday.info recently compiled here, Wells Fargo has among other things in recent years been hit with $185-million in fines for opening three-million fake accounts as employees were pressured to meet highly aggressive cross-sales goals, refused to let employees take bathroom breaks, extended the terms of mortgages and raised costs for customers who were in bankruptcy, mistreated members of the military by illegally repossessing their cars, charged 800,000 customers with car loans for auto insurance they did not need that forced roughly 274,000 Wells Fargo customers into repossessions, and more.
On Friday, the Fed announced San Francisco-based Wells Fargo has agreed to its order, with Yellen saying regulators cannot allow “pervasive and persistent misconduct at any bank.”
In a letter to Sen. Elizabeth Warren (D-MA), Yellen said, “The firm has much to do to earn back the trust of its customers, supervisors, investors and the public,” and added that the Fed’s order “is unique and more stringent than the penalties the board has imposed against other bank holding companies for similar unsafe and unsound practices.”
Under the agreement Wells Fargo’s assets are now capped at $1.95 trillion. The Fed said the deal allows the bank to continue taking deposits and lending to customers, but it must stay below the limit. The Fed said compliance will be measured as an average of assets over two quarters.
In addition, the Fed has set a Sept. 30, 2018 deadline for Wells Fargo to identify reforms and have them reviewed by an outside firm. The asset cap can be lifted before the rest of the order is satisfied.
The Federal Reserve has also told the board it must do a better job of overseeing Wells Fargo’s senior management and develop a plan to hold them accountable for any shortcoming. The board was further ordered to detail its plan to overhaul how Wells Fargo pays senior executives and how it plans to punish senior executives if they violate bank policies or government rules, or enable “adverse risk outcomes.”
Finally, the Fed ordered Wells Fargo to replace four board members.