Wells Fargo fined $1 billion by regulators to settle auto-loan, mortgage abuses

Adam Shell | USA TODAY

Show Caption Hide Caption Number of fake Wells Fargo accounts jumps to 3.5 million Wells Fargo’s fake account scandal started last year. Angeli Kakade (@angelikakade) has the story.

Wells Fargo agreed to pay a $1 billion fine to federal regulators Friday over mortgage and auto loan violations that resulted in customers paying extra fees.

The settlement, announced by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency, found that the bank harmed customers by charging them for car insurance tied to auto loans without their knowledge and by charging certain borrowers for extensions on mortgage interest-rate locks, even though the delays weren't the clients' fault.

Under the settlement, which is the largest imposed by the consumer bureau, Wells Fargo will reimburse affected consumers and make improvements to its risk management and compliance.

"We have said all along that we will enforce the law," Mick Mulvaney, the CFPB's acting director, said in a statement.

The $1 billion fine is the latest setback for Wells Fargo as it struggles to regain customer trust after a huge unauthorized accounts scandal. Last year, it acknowledged that it created about 3.5 million bank and credit-card accounts not authorized by customers, and it paid $185 million in penalties.

In a consent order released Friday, the CFPB said Wells Fargo "inappropriately" charged borrowers extra fees for interest rate-lock extensions even though the delays were caused by the bank. The bank's own internal audit, the CFPB noted, "determined that its Extension Fees policy was not consistently applied," which resulted in customers paying extra fees "that should have been absorbed by the (bank) under its policy."

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In October, the bank said it would give refunds to customers who paid the fees between Sept. 16, 2013, and Feb. 28, 2017.

The fine from regulators was also tied to Wells Fargo charging customers in an "unfair manner" for auto insurance without their knowledge. The consent order noted that Wells Fargo "forcibly placed duplicative or unnecessary insurance on hundreds of thousands of those borrowers' vehicles."

The bank announced in July that it would give refunds to more than 570,000 auto loan customers who paid for the unnecessary coverage.

In a release, the Office of the Comptroller of the Currency, said, "The OCC took these actions given the severity of the deficiencies and violations of law, the financial harm to consumers, and the bank's failure to correct the deficiencies and violations in a timely manner."

In a statement, Wells Fargo CEO Tim Sloan said, "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."

Due to the sizable penalty, the bank said it would adjust its first-quarter 2018 earnings results to reflect a $800 million reduction in its net income from previously reported figures.

Wells Fargo's stock price rose nearly 2% in late afternoon trading Friday.

During a conference call with investors and Wall Street analysts last week, Sloan outlined the bank's efforts to restore confidence and improve customer services. He said the bank had made progress but faced challenges.

Brian Kleinhanzl, a banking analyst at KBW, said it was still unclear if all of Wells Fargo's legal issues were behind them.

"The settlement removes one overhang, but there are still overhangs on when business momentum will return to the company and whether or not additional wrongdoing will be found," he noted in a report.

Contributing: Kevin McCoy