By Katalina M. Bianco, J.D.
The Consumer Financial Protection Bureau charged Wells Fargo Bank, N.A. with UDAAP violations stemming from the bank's widespread practice of secretly opening up two million unauthorized deposit and credit card accounts. Citing the bank's illegal cross-selling practices, the bureau hit Wells Fargo with its largest penalty to date: $100 million.
The CFPB noted that the bank’s cross selling practices of offering many consumer financial products and services would have been "common and accepted business practice" if it were based on "efforts to generate more business from existing customers based on strong customer satisfaction and excellent customer service." However, the bureau found that the bank had compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to monitor the implementation of these programs with adequate care. Therefore, the CFPB determined that the bank engaged in unfair, deceptive, or abusive acts or practices.
Consent order. In addition to the $100 million fine, payable to the CFPB’s Civil Penalty Fund, under the terms of a consent order, Wells Fargo must also pay full refunds to consumers, which are expected to total $2.5 million and hire an independent consultant to conduct a thorough review of its sales procedures.
OCC action. The Office of the Comptroller of the Currency also took action against Wells Fargo, requiring the bank to pay a $35 million civil money penalty and restitution to customers who were harmed by the bank’s unsafe or unsound sales practices. In assessing the civil money penalty, the OCC noted a number of factors came into play, including the bank’s failure to develop and implement an effective enterprise risk management program to detect and prevent the unsafe or unsound sales practices, and the scope and duration of the practices. Under a separate Cease and Desist Order, Wells Fargo must provide restitution to customers who were harmed by the bank’s unsafe or unsound sales practices and also take steps to correct the deficiencies in the bank’s risk management and oversight of the bank’s sales practices. Wells Fargo was ordered to pay another $50 million to the city and county of Los Angeles.
Cordray remarks. Commenting on the bureau’s action, CFPB Director Richard Cordray said, "Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences." In a press call, Cordray added, "Unchecked incentives can lead to serious consumer harm" and that the bank’s practices were "violation of trust and an abuse of trust."
Commitment to customers. In response to the regulators' actions, Wells Fargo issued a statement that it "reached these agreements consistent with our commitment to customers and in the interest of putting this matter behind us."
Waters calls for criminal penalties. Representative Maxine Waters (D-Calif), Ranking Member of the Committee on
Financial Services, expressed her concern that financial penalties may not be
enough to deter future fraudulent practices, and called on the City and County
of Los Angeles, as well as federal financial regulators, to refer all relevant
information to the Department of Justice. Waters encouraged the DOJ to pursue
criminal cases wherever warranted.
Bridgepoint Education, Inc. California-based Bridgepoint Education, Inc., has agreed to settle charges that it deceived students about the amount of their student loan payments. Bridgepoint will refund the roughly $5 million in principal and interest that students already have paid, discharge another $18.5 million in unpaid debt—the entire amount that students currently owe the company—and pay an $8 million civil penalty, the Consumer Financial Protection Bureau has announced. Bridgepoint operates under the names Ashford University and University of the Rockies.
The CFPB’s investigation was assisted by the California Attorney General and the Department of Education.
Consent order. The CFPB charges that Bridgepoint’s financial aid advisors gave incorrect payment information to students who needed private education loans. According to the consent order, advisors misrepresented to loan applicants that students normally made loan payments of only $25 per month. As a result, students did not know the accurate cost of their loans and were required to make larger payments than they expected.
In addition to the monetary relief, Bridgepoint has agreed to:
- require all new students or current students who change programs to use a specified financial aid disclosure tool before they enroll, in order to make costs clear;
- cease any further misrepresentations; and
- remove any derogatory information about outstanding student loans from students’ credit files and halt further reports.
While it agreed to settle the CFPB’s charges, the company did not admit any wrongdoing.
