At a Glance
- The Consumer Financial Bureau has fined Wells Fargo $3.7 billion for repeated legal violations.
- These violations include misapplying loan payments, charging incorrect interest and fees, and wrongfully foreclosing on homes and repossessing vehicles.
- This is just the latest in a long series of scandals for the bank over the past decade.
On Dec. 20, 2022, the Consumer Financial Protection Bureau fined Wells Fargo $3.7 billion for repeated legal violations. It’s the largest fine the CFPB has ever imposed.
Wells Fargo has been in the news a lot over the past decade for a bevy of bad practices, incurring fines from the CFPB, U.S. Department of Justice, and U.S. Securities and Exchange Commission.
We break down this latest scandal, some of the bank’s biggest prior ones, and explore what this means for you if you’re a Wells Fargo customer.
Why Was Wells Fargo Fined?
The CFPB cited a laundry list of legal violations across several major product lines. These violations include:
- Misapplying mortgage and auto loan payments
- Charging incorrect interest and fees, including surprise overdraft fees
- Wrongfully foreclosing on homes and repossessing vehicles
- Improperly denying mortgage loan modifications
- Failing to refund the unused portions of GAP protection
- Unlawfully freezing customers’ accounts for two weeks or more due to a faulty fraud detection system
- Making misleading claims about monthly service charge waivers
These violations affected over 16 million customer accounts over several years, resulting in billions of dollars of harm.
Details of the Settlement
For its unfair and deceptive practices, the CFPB ordered Wells Fargo to pay the record-breaking fine and take certain actions.
$3.7 Billion Fine
Here’s how the $3.7 billion fine breaks down.
$2 Billion to Repay Customers
Two billion dollars of the fine will be used to redress affected consumers by:
- Refunding wrongful fees
- Returning home and auto loan overpayments
- Compensating consumers whose homes or vehicles were improperly foreclosed on or repossessed
- Refunding the unused portions of GAP protection
$1.7 Billion Civil Penalty
The remainder of the fine will go into the CFPB’s Civil Penalty Fund, which provides relief to consumers affected by financial protection law violations.
In addition to the monetary consequences, Wells Fargo must take the following actions.
Stop Charging Surprise Overdraft Fees
Surprise overdraft fees occur when there’s enough money in a customer’s account to cover a transaction at the time it’s made, even if it causes a negative balance once it clears.
While these fees aren’t necessarily illegal, the CFPB has cautioned that “charging an unanticipated overdraft fee may generally be an unfair act or practice.” The agency has determined Wells Fargo’s fees fell into that category and has forbidden the bank from charging these fees when an account has sufficient funds when a transaction is authorized.
Deliver Refunds for Certain Auto Loan Add-Ons
Guaranteed asset protection (GAP) is an auto loan add-on that covers borrowers if their car is totaled or stolen. Standard car insurance only reimburses you for the car’s current market value. GAP pays the difference between that value and your loan amount.
If you prepay GAP insurance, a bank must typically refund some of your money if you pay off your loan early or sell your car before the loan ends. Wells Fargo must ensure they comply with this requirement from now on.
Other Wells Fargo Scandals and Fines to Date
This is hardly the first time Wells Fargo has been in the hot seat.
As CFPB Director Rohit Chopra put it in the agency’s statement, the bank has demonstrated a “rinse-repeat cycle of violating the law.” Wells Fargo’s many missteps led two former chief executives to step down — John G. Stumpf in 2016 and Timothy Sloan in 2019.
The bank has been criticized for a lot of violations and bad practices over the past decade. Grab a cup of your favorite beverage because it’s a long list. (And this is only a partial one.)
- Fake account creation
- Illegally repossessing service members’ vehicles
- Illegal student loan servicing practices
- Auto insurance and home loan lending abuses
- Securities fraud
- Market-linked investments misconduct
- Selling add-on products customers didn’t fully understand
- Participation in the housing bubble
- Deficient compliance risk management program
- Overcharging merchants
- Foreign exchange overcharges
- Not meeting the requirements of the 2018 OCC order
What Does All This Mean for Wells Fargo Customers?
So, how bad is Wells Fargo, really, compared to other banks? Should you consider taking your business elsewhere if you’re a Wells Fargo customer?
As with most financial choices, there are pros and cons. Wells Fargo is one of the “big four” U.S. banks, which means it has plenty of branches and ATMs across the U.S. and offers a wide range of services. It’s been in business since the 1850s. Its mobile app gets good scores — 4.8 out of 5 stars on both the Apple App Store and Google Play.
Wells Fargo’s current chief executive, Charles W. Scharf, says the bank “is a different company today,” but that remains to be seen. All we know for sure is it has a sizable track record of playing fast and loose with the rules. And Chopra warns against assuming “Wells Fargo has moved past its longstanding problems or that the CFPB’s work here is done.”
If Wells Fargo’s dubious practices have you worried or you’d rather distance yourself from a bank that’s seen so much scandal, you’d be entirely justified. Here’s how to switch banks if you opt for this route.