March 8, 2019
Wells Fargo—A Timeline of Recent Consumer Protection and
Corporate Governance Scandals
Wells Fargo Bank, N.A., is a large federally chartered
In coordination with the Department of Justice (DOJ), the
depository bank. It is a subsidiary of Wells Fargo and
OCC assesses $20 million in civil money penalties against
Company, a bank holding company (hereafter, Wells Fargo
Wells Fargo for violating the Servicemembers Civil Relief
or the Bank). Wells Fargo is the fourth largest bank in the
Act (SCRA; P.L. 108-189). The OCC also orders the bank
United States with $1.9 trillion in assets at the end of 2018.
to make restitution to servicemembers who were harmed.
In 2016, a scandal involving Wells Fargo creating fake
Violations include failure to accurately disclose
accounts—which may have harmed more than 2 million
servicemembers’ active duty status to the court prior to
consumers—increased scrutiny of the bank by Congress,
evicting those servicemembers and failure to obtain court
financial regulators, and the public. Since the scandal was
orders prior to repossessing 413 servicemembers’
revealed to the public, certain of Wells Fargo’s business
automobiles. In November 2017, Wells Fargo admitted it
practices have continued to raise concerns relating to
had illegally repossessed another 450 servicemembers’
consumer protection and corporate governance, leading to
cars.
additional congressional oversight and interest.
October 2016: Wells Fargo’s CEO John Stumpf retires.
This In Focus provides a brief overview of federal
Between forfeiture and eventual clawbacks, he surrenders
regulation of Wells Fargo and a timeline of key events
$69 million in compensation. Another key executive,
involving the company since the scandal’s disclosure. It
Carrie Tolstedt, surrenders $67 million in compensation.
then discusses a few relevant policy issues, including
consumer protection and corporate governance, and
December 2016: As a consequence of deficiencies in Wells
highlights recent instances of congressional oversight of the
Fargo’s “living will,” regulators restrict Wells Fargo’s
bank.
ability to grow its business. P.L. 111-203 (often called the
Dodd-Frank Act) requires certain companies to submit a
Overview of Regulation
living will to regulators to show how large banks would
Similar to other large banks, several federal financial
unwind themselves in the event of a large financial loss.
regulators have overlapping oversight authority of Wells
Fargo. Although the Office of the Comptroller of the
2017
Currency (OCC), Federal Reserve, and Federal Deposit
March 2017: The OCC downgrades Wells Fargo’s
Insurance Corporation (FDIC) each have safety and
Community Reinvestment Act (CRA) rating to “needs to
soundness authority, the OCC is the primary prudential
improve,” from “Outstanding” due to Wells Fargo’s
regulator of Wells Fargo’s bank subsidiary. The OCC
discriminatory and illegal credit practices, including the
regulates Wells Fargo’s internal controls, its management
fake accounts scandal.
of operational and reputational risks, and the phases of its
deposit and lending activities. The Federal Reserve has
April 2017: The Sales Practices Investigation Report
authority over the bank holding company. The Bureau of
(SPIR) issued by Wells Fargo reveals that the bank’s
Consumer Financial Protection (CFPB) regulates and
board of directors and bank executives knew of many of
supervises Wells Fargo for consumer protection
the issues underlying the fake accounts scandal as far
compliance.
back as 2002 but did not take corrective action and did
not fully disclose the issues until September 2016.
Key Events
The following provides a timeline of selected events
July 2017: Wells Fargo admits that it charged about
involving Wells Fargo since the reveal of the fake accounts
570,000 customers for auto insurance on car loans
scandal. Most of the consumer protection issues discussed
without verifying whether these customers already had
below came to light as a result of consumer complaints or
existing insurance. As a consequence, up to 20,000
lawsuits that were eventually disclosed by the bank.
customers may have defaulted on their car loans.
2016
October 2017: Wells Fargo admits it wrongly fined
September 2016: Wells Fargo pays $185 million in fines
110,000 mortgage clients for missing a deadline, even
to the CFPB, OCC, and the City and County of Los
though the delays were the bank’s fault.
Angeles for creating about 1.5 million unauthorized
deposits and 623,000 credit card accounts in customers’
2018
names without their knowledge. Wells Fargo also
February 2018: The Federal Reserve restricts Wells
discloses that it previously fired 5,300 employees for their
Fargo’s growth until it improves its governance and
involvement in creating these fake accounts.
https://crsreports.congress.gov
Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
controls. Wells Fargo announces it will replace four
As a result of the events described above, some have raised
members of its board by the end of the year.
issues with how Wells Fargo’s senior leadership’s
emphasized cross-selling products and meeting specific
April 2018: Wells Fargo, CFPB, and OCC reach a $1
sales goals. According to the SPIR, employees felt pressure
billion settlement of issues related to Wells Fargo’s auto-
to sell unwanted or unneeded products to customers and
loan insurance and mortgage practices.
open unauthorized accounts due to an aggressive sales
culture and performance management that focused on
July 2018: Reportedly, Wells Fargo refunded millions of
cross-selling. The report suggests Wells Fargo’s
dollars for charges related to add-on services, such as pet
decentralized corporate structure might have obscured the
insurance and legal services, it added onto customers’
scale and nature of the underlying problems. According to
accounts without the customers’ full knowledge.
the SIPR, this structure allowed parts of the bank to operate
without oversight, impeding corporate risk management
August 2018: Wells Fargo pays a $2.1 billion fine to DOJ
functions.
for misrepresenting the type of mortgages it sold to
investors between 2005 and 2007.
A second area of concern is how late Wells Fargo disclosed
to investors the potential damage to the bank from these
Wells Fargo discloses that it incorrectly denied loan
events. Such disclosures are governed by securities laws.
modifications for 625 people; 400 of whom had their
Wells Fargo argues that it was not required to disclose these
homes foreclosed.
issues earlier, because the related fines were small and not
material compared with its earnings. Others argue that the
2019
reputational risk to Wells Fargo made these issues material
January 2019: Wells Fargo releases its annual financial
and thus they should have been disclosed earlier.
results for 2018. The bank earned as profits $22.4 billion
in 2018 and $22.2 billion in 2017. It recorded $86.4
The bank has made efforts to address concerns with its
billion in revenue in 2018 as compared with $88.4 billion
corporate governance. In October 2016, Wells Fargo’s
in 2017. The bank spent $25.8 billion on share
board named the Chief Operating Officer, Timothy Sloan,
repurchases and dividend payments in 2018.
as the new CEO. Also, the board separated the role of the
chairman and CEO and fired other key executives related to
Consumer Protection
the fake accounts scandal. In addition to the new CEO,
As a result of the various issues described above, federal
seven of the thirteen board members have been replaced
financial regulators entered into multiple consent orders
since 2016, including the chair of the board.
with the bank to address the harm to consumers and to
strengthen Wells Fargo’s consumer compliance risk
Congressional Oversight
management structures.
The various Wells Fargo developments highlight a number
of issues for potential congressional oversight relating to
These consent orders required Wells Fargo to set aside
the performance of federal financial regulators and banks
funds to compensate harmed consumers. Some forms of
that are considered “too big to fail.” On the one hand,
financial harm caused by Wells Fargo may be relatively
several regulators, such as the OCC and the CFPB, had
straightforward to identify, such as fees that individuals
supervisory authority over Wells Fargo, yet did not detect
paid on unauthorized accounts. Other forms of harm,
widespread fraudulent practices that occurred over an
however, may be more difficult to identify and measure,
extended period of time. On the other hand, since 2016, the
like effects on a consumer’s credit score.
OCC, the CFPB, and the Federal Reserve have issued
consent orders limiting the bank’s growth and requiring it
As part of these consent orders, Wells Fargo has also
to make changes in its consumer protection and corporate
agreed to take actions to improve the bank’s consumer
governance practices. Critics continue to assert that
compliance risk management. In 2016, the bank agreed to
regulatory enforcement measures against Wells Fargo have
undergo an independent consultant’s review of its consumer
been too focused on assessing fines rather than on other
compliance practices, including its sales practices, and
measures, including breaking up the bank. During this time,
develop a plan to improve its consumer compliance
regulators also have increased their scrutiny of financial
management. In 2018, as additional consumer protection
institutions’ culture and compliance management practices
concerns were revealed, the consent order required Wells
for all examined institutions.
Fargo to develop a robust enterprise-wide compliance risk
management plan and perform an internal audit of its
Congress has continued to express interest in issues
practices.
surrounding Wells Fargo. Between 2016 and 2018, both the
previous CEO, John Stumpf, and the current CEO, Timothy
Corporate Governance
Sloan, have testified before Congress. The House Financial
Wells Fargo is a publically traded firm, which means that it
Services Committee has scheduled a hearing with Timothy
must comply with securities laws and corporate governance
Sloan for March 12, 2019.
rules from the Securities and Exchange Commission. A
major component of corporate governance is the business
Cheryl R. Cooper, Analyst in Financial Economics
environment created by the board of directors and senior
Raj Gnanarajah, Analyst in Financial Economics
management.
IF11129
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Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
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https://crsreports.congress.gov | IF11129 · VERSION 1 · NEW