A new report from the House Financial Services Committee argues that the Consumer Financial Protection Bureau stopped its investigation of Wells Fargo & Co.’s faked checking accounts scandal early and missed an opportunity to uncover Wells Fargo Dealer Services’ ensuing collateral protection insurance scandal earlier.
The report cites a document referred to as the Recommendation Memorandum, which was a letter written to and approved by the CFPB from the Office of Enforcement. It shows that the bureau could have pursued a $10 billion fine on the bank, but chose instead to stop the investigation and settle for a $100 million fine — 1% of the estimated total — in order to provide faster relief to affected consumers.
“By pausing our investigation to attempt to resolve this matter, we risk failing to identify similar sales-integrity issues involving other products,” the letter states. “During our investigation, we briefly explored other acts and practices that may also be illegal, but we’ve determined that these potential violations are likely to be less pervasive and less egregious than the ones we’ve identified here. None appear likely to involve significant consumer harm. Given the seriousness of the violations we have identified, and the significant penalties associated with them, we see little upside to continuing our investigation in the hope that we might find more.”
Wells Fargo Dealer Services previously told Auto Finance News that the cause of the CPI scandal differs significantly from the bank’s checking account scandal. Where checking accounts were falsely created because of sales incentives at the bank, the auto division had no such sales practices.
Yet, the CPI practice did cause consumer harm that was not unveiled by the CFPB sooner. In August, Wells Fargo Dealer Services admitted to charging at least 500,000 consumers for force-placed insurance that they did not need because they were already paying for it through a third-party provider. The practice sent 274,000 borrowers into delinquency and caused at least 20,000 wrongful repossessions. In July the company announced a plan to pay $80 million in remediations to affected consumers, a company spokeswoman reiterated to AFN today.
“These portions of the Recommendation Memorandum raise the question of whether the CFPB failed to avail itself of the opportunity to potentially uncover some of the conduct that Wells Fargo publicly reported on Aug. 4, 2017, that may have caused consumer harm, such as issues with Wells Fargo’s collateral protection insurance and guaranteed auto protection products,” the committee wrote in its report. “The committee is actively seeking answers to this important question.”
While the CFPB missed an opportunity to uncover the CPI scandal earlier under a continued investigation, the consumer harm had already been done at that point. Wells Fargo Dealer Services stopped placing CPI policies in September 2016 — the same time that the fake checking accounts scandal was revealed, AFN previously reported. The company began an investigation of the policy in July 2016, a company spokeswoman reiterated, and while the problem was self-identified by Wells Fargo and disclosed to regulators, it’s still unclear when that disclosure took place.
The company declined to comment specifically on the report or specific conversations with regulators, a spokeswoman told AFN.
Additionally, the CFPB Director Richard Cordray confirmed that the regulator is investigating the bank’s CPI practices and could choose to fine the bank an additional amount.
The committee’s report also attempts to claim that Cordray was misleading during Congressional testimony when he said that its investigation was “independent and comprehensive.” However, the report admittedly found no proof that those statements were misleading; instead, it claims that the memorandum does not support Cordray’s remarks.
“The CFPB’s handling of this matter and its refusal to fully comply with the Congressional subpoena are a slap in the face to millions of Americans who were harmed by Wells Fargo and further evidence of the CFPB’s unaccountable structure and leadership,” Committee Chairman Jeb Hensarling (R-TX), wrote in a press release. “The premature suspension of its investigation means that the CFPB also potentially lost the opportunity to discover recently revealed instances of further consumer harm.”
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