Updated February 3, 2020
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),
depository bank. It is a subsidiary of Wells Fargo and
the OCC assesses $20 million in civil money penalties
Company, a bank holding company (hereinafter, Wells
against Wells Fargo for violating the Servicemembers
Fargo or the bank). Wells Fargo is the fourth-largest bank
Civil Relief Act (SCRA; P.L. 108-189). The OCC also
in the United States with $1.9 trillion in assets at the end of
orders the bank to make restitution to servicemembers
2019. In 2016, a scandal involving Wells Fargo creating
who were harmed. Violations include failure to
fake accounts—which may have harmed more than 2
accurately disclose servicemembers’ active-duty status
million consumers—increased scrutiny of the bank by
to the court prior to evicting those servicemembers and
Congress, financial regulators, and the public. Since the
failure to obtain court orders prior to repossessing 413
scandal was revealed to the public, certain of Wells Fargo’s
servicemembers’ automobiles. In November 2017,
business practices have continued to raise concerns relating
Wells Fargo admitted it had illegally repossessed
to consumer protection and corporate governance, leading
another 450 servicemembers’ cars.
to additional congressional oversight and interest.
October 2016: Wells Fargo’s chief executive officer
This In Focus provides a brief overview of federal
(CEO), John Stumpf, retires. Between forfeiture and
regulation of Wells Fargo and a timeline of key events
clawbacks, he surrendered $69 million in compensation.
involving the company since the scandal’s disclosure. It
Another key executive, Carrie Tolstedt, surrendered $67
then discusses a few relevant policy issues, including
million in compensation. Wells Fargo’s board names the
consumer protection and corporate governance, and
chief operating officer, Timothy Sloan, as the new CEO.
highlights recent instances of congressional oversight of the
bank.
December 2016: As a consequence of deficiencies in
Wells Fargo’s “living will,” regulators restrict Wells
Overview of Regulation
Fargo’s ability to grow its business. P.L. 111-203 (often
Similar to other large banks, several federal financial
called the Dodd-Frank Act) requires certain companies
regulators have overlapping oversight authority of Wells
to submit a living will to regulators to show how large
Fargo. Although the Office of the Comptroller of the
banks would unwind themselves in the event of a large
Currency (OCC), Federal Reserve, and Federal Deposit
financial loss.
Insurance Corporation (FDIC) each have safety and
soundness authority, the OCC is the primary prudential
2017
regulator of Wells Fargo’s bank subsidiary. The OCC
regulates Wells Fargo’s
March 2017: The OCC downgrades Wells Fargo’s
internal controls, its management
Community Reinvestment Act (CRA) rating to “needs
of operational and reputational risks, and its deposit and
to improve,” from “outstanding” due to Wells Fargo’s
lending activities. The Federal Reserve has authority over
discriminatory and illegal credit practices, including the
the bank holding company. The Bureau of Consumer
fake accounts scandal.
Financial Protection (CFPB) regulates and supervises Wells
Fargo for consumer protection compliance.
April 2017: The Sales Practices Investigation Report
Key Events
(SPIR) issued by Wells Fargo reveals that the bank’s
board of directors and bank executives knew of many of
The following provides a timeline of selected events
the issues underlying the fake accounts scandal as far
involving Wells Fargo since the reveal of the fake accounts
back as 2002.
scandal. Most of the consumer protection issues discussed
below came to light as a result of consumer complaints or
July 2017: Wells Fargo admits that it charged about
lawsuits that were eventually disclosed by the bank.
570,000 customers for auto insurance on car loans
2016
without verifying whether these customers already had
existing insurance. As a consequence, up to 20,000
September 2016: Wells Fargo pays $185 million in fines
customers may have defaulted on their car loans.
to the CFPB, OCC, and the City and County of Los
Angeles for creating about 1.5 million unauthorized
October 2017: Wells Fargo admits it wrongly fined
deposits and 623,000 credit card accounts in customers’
110,000 mortgage clients for missing a deadline, even
names without their knowledge. Wells Fargo also
though the delays were the bank’s fault.
discloses that it previously fired 5,300 employees for
their involvement in creating these fake accounts.
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Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
2018
management. In 2018, as additional consumer protection
concerns were revealed, the consent order required Wells
February 2018: The Federal Reserve restricts Wells
Fargo’s growth until it improves its gov
Fargo to develop a robust enterprise-wide compliance risk
ernance and
management plan and perform an internal audit.
controls. Wells Fargo announces it will replace four
members of its board by the end of the year.
Corporate Governance
April 2018: Wells Fargo, CFPB, and OCC reach a $1
Wells Fargo is a publically traded firm, which means that it
billion settlement of issues related to Wells Fargo’s
must comply with securities laws and corporate governance
auto-loan insurance and mortgage practices.
rules from the Securities and Exchange Commission. A
major component of corporate governance is the business
July 2018: Reportedly, Wells Fargo refunded millions
environment created by the board of directors and senior
of dollars for charges related to add-on services, such as
management.
pet insurance and legal services, it added onto
customers’ accounts without the customers’ full
As a result of the events described above, some have raised
knowledge.
issues with how Wells Fargo’s senior leadership
emphasized cross-selling products and meeting specific
August 2018: Wells Fargo pays a $2.1 billion fine to
sales goals. According to the SPIR, employees felt pressure
DOJ for misrepresenting the type of mortgages it sold to
to sell unwanted or unneeded products to customers and
investors between 2005 and 2007. Wells Fargo discloses
open unauthorized accounts due to an aggressive sales
that it incorrectly denied loan modifications for 625
culture and performance management that focused on
people, 400 of whom had their homes foreclosed.
cross-selling. The report suggests Wells Fargo’s
decentralized corporate structure might have obscured the
2019
scale and nature of the underlying problems. According to
Timothy Sloan resigns as CEO in March, after the OCC
the SPIR, this structure allowed parts of the bank to operate
made a rare public rebuke of the bank. Throughout 2019
without oversight, impeding corporate risk management
other key executives leave the company. Charles W.
functions. A second area of concern is how late Wells
Scharf becomes the CEO and president in October.
Fargo disclosed to investors the potential damage to the
bank from these events.
2020
To address concerns about the bank’s corporate governance
January 2020: The OCC issues lifetime prohibition
issues, the majority of the board members have been
from participating in the banking industry and new civil
replaced, and several key executives have left the company
money penalties (CMPs) to two former senior
either voluntarily or as a result of OCC or board action.
executives; John Stumpf ($17.5 million) and Carrie
Tolstedt ($25 million). OCC also isssues other
Congressional Oversight
prohibitions or cease and desist orders along with CMPs
The various Wells Fargo developments highlight a number
to other former key executives.
of issues for potential congressional oversight relating to
It is reported that the Treasury Department’s Office of
the performance of federal financial regulators and banks
Inspector General (IG) has been assessing OCC’s
that are considered “too big to fail.” On the one hand,
actions in connection with sales practices at Wells Fargo
several regulators, such as the OCC and the CFPB, had
and expects to release its report sometime in 2020.
supervisory authority over Wells Fargo, yet did not detect
widespread fraudulent practices that occurred over an
Consumer Protection
extended period of time. On the other hand, since 2016, the
OCC, the CFPB, and the Federal Reserve have issued
As a result of the various issues described above, federal
consent orders limiting the bank’s growth and requiring it
financial regulators entered into multiple consent orders
with the bank to address the harm to consumers and to
to make changes in its consumer protection and corporate
strengthen Wells Fargo’s consumer compliance risk
governance practices. Critics continue to assert that
management structures.
regulatory enforcement measures against Wells Fargo have
been too focused on assessing fines rather than on other
measures, including breaking up the bank. During this time,
These consent orders required Wells Fargo to set aside
regulators also have increased their scrutiny of financial
funds to compensate harmed consumers. Some forms of
institutions’ culture and compliance management pract
financial harm caused by Wells Fargo may be relatively
ices
for all examined institutions.
straightforward to identify, such as fees that individuals
paid on unauthorized accounts. Other forms of harm,
however, may be more difficult to identify and measure,
Congress has continued to express interest in issues
like effects on a consumer’s credit score.
surrounding Wells Fargo. Between 2016 and 2019, both the
previous CEOs, John Stumpf and Timothy Sloan, have
testified before Congress.
As part of these consent orders, Wells Fargo has also
agreed to take actions to improve the bank’s consumer
compliance risk management. In 2016, the bank agreed to
Cheryl R. Cooper, Analyst in Financial Economics
undergo an independent consultant’s review of its consumer
Raj Gnanarajah, Analyst in Financial Economics
compliance practices, including its sales practices, and
IF11129
develop a plan to improve its consumer compliance
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Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
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