In one of her last acts as chairwoman of the Federal Reserve’s governing board, Janet Yellen has issued restrictions on Wells Fargo & Co.’s asset
growth and ordered the bank to replace four of its board members.
The Fed’s order limits growth of Wells Fargo’s total consolidated assets beyond levels reported at the end of 2017, unless it receives prior approval from the regulator.
“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” Yellen said in a statement. “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”
The Fed will restrict Wells Fargo’s growth until its risk management and governance “sufficiently improves,” but it will not require Wells to cease current activities, including making auto loans.
Wells Fargo “is confident it will satisfy the requirements of the consent order,” according to a company press release. Under the consent order, the bank will provide the Fed plans within 60 days that detail what Wells Fargo has done and what it has planned “to further enhance the board’s governance oversight, and the company’s compliance and operational risk management,” the release states.
The bank will also replace three current board members by April and a fourth by the end of 2018.
“We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” Timothy J. Sloan, Wells Fargo’s president and chief executive, said in the release. “It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress. We appreciate the Federal Reserve’s acknowledgment of our actions to date. In addition, the order is not related to Wells Fargo’s financial condition — we remain in a strong financial position and stand ready to serve the varied financial needs of our customers.”
Separately, Wells Fargo Dealer Services announced last week that it is changing its name to Wells Fargo Auto in order to reflect the changes the company has made to its operations in the past year.
In November 2017 Wells Fargo paid an additional $5.4 million in remediation to military servicemembers after it was discovered that the lender underestimated the number of affected borrowers from a previous consent order issued by the Department of Justice. The company improperly repossessed vehicles from 863 servicemembers, which cost the company $29.4 million.
Prior to that, Wells Fargo proactively made an $80 million payment to 500,000 consumers who were wrongly charged for an insurance product they didn’t need. However, that matter is still under investigation by several regulatory agencies, including the Office of the Comptroller of the Currency that said the $80 million payment was “insufficient” to cover the full breadth of the affected consumers, according to a leaked document sent to The New York Times.
Wells Fargo began tightening its underwriting standards and shrinking its portfolio in 4Q16, and the lender anticipates those portfolio declines to continue through 2018. The company’s auto portfolio declined 14% year over year to $53.4 billion in the fourth quarter.
This article was written by Natalie Mattila and Emma Sandler.
