Feds lift Wells Fargo asset cap penalty imposed after fake account scandal

Federal regulators on Tuesday lifted Wells Fargo's $1.95 trillion asset cap punishment that had prevented the bank from growing for the past seven years.

The Federal Reserve determined that Wells Fargo has met all the conditions required by the 2018 enforcement action for removal of the growth restriction, the Board of Governors of the Federal Reserve System said in a news release.

The asset cap was Wells Fargo's biggest penalty stemming from its 2016 fake accounts scandal. From 2002 to 2016, thousands of Wells Fargo's Community Bank employees opened millions of unauthorized or fraudulent accounts and other financial products to meet excessive sales goals.

Removal of the asset cap represents successful remediation to the required standard based on management leadership, board oversight and strict supervision holding the firm accountable, member of the Board of Governors Michael Barr said in a statement Tuesday.

Under the 2018 enforcement action, Wells Fargo was required to improve its governance and risk management program and complete a third-party review of these improvements for the limit to be removed, the Federal Reserve said.

"The removal of the growth restriction reflects the substantial progress the bank has made in addressing its deficiencies and that the bank has fulfilled the conditions required for removal of the growth restriction," the Federal Reserve said. "The other provisions in the 2018 enforcement action will remain in place until the bank satisfies the requirements for their termination."

Wells Fargo was slapped with several federal agency consent orders, including the 2018 Federal Reserve effectiveness and risk management order that included the asset cap.

Wells Fargo has changed its business processes and transformed its management team, Wells Fargo CEO Charlie Scharf said in a statement.

"The Federal Reserve's decision to lift the asset cap marks a pivotal milestone in our journey to transform Wells Fargo," Scharf said. "We are a different and far stronger company today because of the work we've done."

Charlotte is home to the San Francisco-based bank's largest employment center with about 27,000 employees.

All 215,000 Wells Fargo employees who have "continued to serve our customers and clients day in and day out through difficult conditions," Scharf said, will receive a $2,000 award, for most in the form of a restricted stock grant. The award will go to tellers, contact center representatives, administrative assistants, operations staff, bankers, financial advisors and corporate staff, giving them an opportunity to own a part of Wells Fargo, Scharf said.

Other consent orders

Wells Fargo has now closed 14 consent orders since 2019, including eight this year.

In May, the Office of the Comptroller of the Currency terminated the 2015 consent order related to the Gramm-Leach-Bliley Act requiring financial institutions to explain information-sharing practices to customers and safeguard data. This consent order, related to a financial subsidiary of Wells Fargo, prevented the bank from acquiring or holding interest in new financial subsidiaries without consulting with the OCC first.

In April, the Consumer Financial Protection Bureau's 2018 consent order related to the company's compliance risk management program was terminated.

In March, Office of the Comptroller of the Currency terminated its 2021 consent order related to loss mitigation practices in the company's Home Lending business.

In February, three consent orders were lifted:

Office of the Comptroller of the Currency terminated its 2018 consent order related to the company's compliance risk management program.

The Federal Reserve Board of Governors terminated two 2011 consent orders: one from April 2011 related to residential mortgage loan servicing and foreclosure processing, and the other in July 2011 over mortgage lending practices at a former subsidiary. In that case, Wells Fargo was fined $85 million for steering prime borrowers into costly subprime loans and falsifying income data on mortgage applications. Wells Fargo was also required to compensate borrowers. Wells Fargo didn't admit to wrongdoing, but the Fed required the bank to improve oversight of its compensation and performance management policies for mortgage loan officers and underwriters.

In January, a 2022 Consumer Financial Protection Bureau consent order was terminated. In that case, Wells Fargo was ordered to pay nearly $4 billion for "widespread mismanagement" of its automobile lending, consumer deposit accounts and mortgage lending.

Wells Fargo's scandal and regulatory problems

Wells Fargo's regulatory sanctions began after the fake accounts scandal was discovered in 2016. Since then, regulators identified additional problems with how the bank handled mortgages, auto loans and consumer deposit accounts.

In 2018, Wells Fargo was charged a combined $1 billion from the Consumer Finance Protection Bureau and the Office of the Comptroller of the Currency for improper mortgage and auto-lending practices that harmed consumers.

In 2020, the bank agreed to pay a $3 billion fine to federal prosecutors and the SEC over its practices.

Also that year, 11 former Wells Fargo senior executives were charged by the comptroller's office. Eight settled, paying over $43 million in civil penalties, including former CEO John Stumpf who was ordered to pay $17.5 million.

In 2022, CFPB ordered Wells Fargo Bank to pay a $1.7 billion fine and more than $2 billion for repeated auto lending, mortgage and account deposit practices that harmed over 16 million customers. Bank customers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank, the 2022 CFPB order said.

In May 2023, Wells Fargo was settling a class-action lawsuit from shareholders for $1 billion over claims the bank misled them about how it was complying with regulators in the aftermath of its fake sales scandal.

In September 2023, Carrie Tolstedt, the only Wells Fargo leader criminally charged in the scandal, was sentenced to three years' probation, including six months of home confinement, for her role in misleading investors.

In December, the CFPB sued Wells Fargo for failing to stop "widespread" Zelle fraud. Bank of America and JPMorgan Chase are also named in the lawsuit. Customers have lost more than $870 million during the Zelle network's seven-year existence because of the actions, according to the consumer agency.

Also in December, three former executives were ordered to pay more than $18 million. Claudia Russ Anderson, the former community bank group risk officer, was ordered Tuesday to pay $10 million; David Julian, former chief auditor, was ordered to pay $7 million; and Paul McLinko, former executive audit director, was ordered to pay $1.5 million.

This is a developing story.

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