Wells Fargo closer to ending of Federal Reserve asset cap

Wells Fargo & Co. moved another step closer to having its total asset cap lifted with Monday's ending of the 12th of 15 federal regulator consent orders that have overshadowed the bank since 2017.

The bank said the Consumer Financial Protection Bureau terminated a 2018 consent order related to the company's compliance risk management program.

It is the sixth consent order to be removed since the start of 2025.

Still looming: the Federal Reserve's consent order that imposed a $1.95 trillion asset cap in 2018 in response to the bank's fraudulent checking account scandal that erupted in September 2016. For banks, loans are considered assets.

The cap has put Wells Fargo at a competitive disadvantage compared with its national bank peers JPMorgan Chase & Co., Bank of American Corp. and Citigroup.

Wells Fargo has admitted that from 2002 to 2016, the sales pressure of trying to increase the number of product accounts per customer known as cross selling led Community Bank personnel — primarily tellers and other branch employees — to open millions of accounts and other financial products that were unauthorized or fraudulent.

Fed Chairman Jerome Powell said in 2021 the asset cap would remain until the Fed is confident that Wells Fargo has resolved a series of internal governance and risk-control issues.

"Today's termination, along with the recent closure of other consent orders, demonstrates that we have completed much of our common risk and control infrastructure work, including work that is required by other orders," Wells Fargo chief executive Charlie Scharf said in a statement. "I remain confident that we will complete the work needed to close our other open consent orders.

"Wells Fargo is a different and stronger company today as we focus on creating long-term value for our customers, clients, communities and shareholders."

Banking analysts and economists say the speed of terminating six consent orders so far this year reflects both Wells Fargo's efforts at internal changes since Scharf took over as chief executive, and a focus on less-restrictive financial regulatory oversight by the second Trump administration.

The latter represents an intriguing twist given most of the consent orders were issued by federal financial regulators during the first Trump administration. President Donald Trump said in December 2017 that he did not support easing up on sanctions and penalties against Wells Fargo related to the scandal.

"In the CFPB's 11 years of existence, Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise," former CFPB director Rohit Chopra said in a statement. "The list could go on and on, from defrauding the government to labor abuses and more. The Department of Justice, state attorneys general and other federal regulators have obtained billions more in forfeitures, including civil and criminal fines."

Banks operating under a consent decree "face greater regulation while the decree is in effect, and thus when these decrees are lifted, the banks have less regulatory scrutiny placed on them," Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University, said Tuesday.

"At the same time, there is often some subjectivity in terms of deciding whether the terms for lifting a decree have been met, so it is possible that the Trump administration is taking a more conciliatory approach towards Wells Fargo's compliance efforts than the Biden administration did."

What happened

During the 14-year active period of the fraudulent customer account scandal, Wells Fargo collected millions of dollars in fees and interest to which it was not entitled, harmed customers' credit ratings, and unlawfully misused customers' sensitive personal information.

Examples of fraudulent accounts included: using existing customers' identities — without their consent — to open accounts; forging customer signatures to open accounts without authorization; creating PINs to activate unauthorized debit cards; and moving money from millions of customer accounts to unauthorized accounts.

Other examples included: opening credit cards and bill pay products without authorization; altering customers' contact information to prevent customers from learning of unauthorized accounts and to prevent Wells Fargo employees from reaching customers to conduct customer satisfaction surveys; and encouraging customers to open accounts they neither wanted nor needed.

Wells Fargo acknowledged in 2017 the opening and issuing of at least 3.53 million unauthorized checking and savings accounts, debit cards and credit cards between 2009 and October 2016.

Although the bulk of the fraudulent accounts were established in California and Arizona, there were media reports of 38,722 unauthorized customer accounts being established in North Carolina and 23,327 in South Carolina.

In February 2020, the bank agreed to pay $3 billion to settle U.S. Justice Department and Securities and Exchange Commission investigations into fraudulent sales practices by its Community Bank division.

Total penalties from a series of regulatory and other federal fines add up to at least $11.14 billion.

Christopher Marinac, senior banking analyst with Janney Montgomery Scott, said Tuesday removing the asset cap still may take until 2026 to be considered.

"It has been time to relieve this restriction in my opinion for quite a while," Marinac said.

"At some point, this company needs to move forward and put the past errors behind it."

rcraver@wsjournal.com 336-727-7376 @rcraverWsJ