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Here's what Wells Fargo did to raise a $ 1 billion fine





Bloomberg

Wells Fargo's risk management practices were "reckless, insecure or unhealthy".

Contrary to many of the scandals that have caused billions of dollar penalties for banks, the problems led to a ten-digit government settlement for Wells Fargo & Co. do not seem to have brightly colored emails or merchant messages describing bad behavior ,

The dry language used by the Consumer Financial Bureau and the Currency Auditor's Office, however, does not reveal how the bank's mortgage and auto insurance clients were mistreated, but did point out risk management practices that they consider "reckless, unsafe or unhealthy ".

Wells Fargo's

WFC, + 1

.77%

Risk management has already led to unprecedented Federal Reserve sanctions on growth. Wells Fargo, remember, was punished by the CFPB and other regulators after millions of customer accounts were opened without permission.

To say the OCC, Wells Fargo has not set up an "effective first and second line of defense" with a comprehensive plan to address compliance risk deficiencies, fill critical employee positions, implement a robust risk assessment and testing program, and report appropriately compliance concerns to the board.

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From then on, the regulators found a bad behavior.

One problem was with mortgages, which is a big deal considering that Wells Fargo is the country's largest mortgage lender. In September 2013, the Bank introduced a new nationwide mortgage rate blocking policy. If a rat-cease extension was necessary due to delays caused by the borrower – for example, if a borrower did not return the required documentation or questioned a low estimate – a fee would be charged.

But if it was because of the lender – Delayed delays – eg delays in obtaining necessary information or internal processing – then the bank would take over the charges.

This is a perfectly legal policy when applied. It was not. According to the CFPB, within a few days of the introduction of the new directive, the bank found that its guidelines for loan officers were inadequate. Nearly three years after an audit first identified risks to consumer harm, Wells Fargo conducted an internal audit and charged fees, if it was not. It was not until March 2017 that Wells Fargo significantly changed its fee-wagering practices.

The other problem was with car insurance practices. Of course, if borrowers get a loan secured by a car or truck, they must have insurance if the vehicle is physically damaged. If a borrower did not receive or maintain insurance, the bank could take out insurance on behalf of the borrower and have the borrower pay interest on it.

Again, this is a perfectly legal practice. The problem for the approximately 2 million borrowers that the bank has forcibly brought into the insurance business since 2005 is that hundreds of thousands of thousands of borrowers have not been required after their own tests. If some clients have provided sufficient insurance and evidence, the bank will continue to maintain the forced accounts policies or not reimburse the premiums or related fees and charges, including redemption fees.

Wells Fargo even received briefings on these issues, not to mention quarterly reports from his suppliers and their own daily reports. These bonuses were not cheap either – usually over $ 1,000 per policy.

For at least 27,000 customers between 2011 and 2016, the additional cost of insurance would have contributed to a failure that would have led to the repossession of their vehicle CFPB said:

Timothy Sloan, CEO of Wells Fargo, said the bank had made "progress Strengthen operational processes, internal controls, compliance and oversight, and keep our promise to review all our practices and make things right for our customers. "

The $ 1 billion fine will result in an additional $ 800 million in the first quarter, reducing earnings per share by 16 cents to 96 cents per share in the first quarter. The $ 800 million provision is not tax deductible, Wells Fargo said.

Wells Fargo shares rose nearly 2% on Friday, but dropped 2% in the last 52 weeks compared to 14% for the S & P 500

SPX, -0.76%

during the same period


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