Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
Updated February 27, 2020
Wells Fargo—A Timeline of Recent Consumer Protection and
Corporate Governance Scandals
Wells Fargo Bank, N.A., is a large federally chartered
include failure to accurately disclose servicemembers’
depository bank. It is a subsidiary of Wells Fargo and
active-duty status to the court prior to evicting those
Company, a bank holding company (hereinafter, Wells
servicemembers and failure to obtain court orders prior
Fargo or the bank). Wells Fargo is the fourth-largest bank
to repossessing 413 servicemembers’ automobiles. In
in the United States with $1.9 trillion in assets at the end of
November 2017, Wells Fargo admitted it had illegally
2019. In 2016, a scandal involving Wells Fargo creating
repossessed another 450 servicemembers’ cars.
fake accounts—which may have harmed more than
2 million consumers—increased scrutiny of the bank by
October 2016: Wells Fargo’s chief executive officer
Congress, financial regulators, and the public. Since this
(CEO), John Stumpf, retires. Between forfeiture and
revelation, certain Wells Fargo business practices have
clawbacks, he surrendered $69 million in compensation.
continued to raise concerns relating to consumer protection
Another key executive, Carrie Tolstedt, surrendered $67
and corporate governance, leading to additional
million in compensation. Wells Fargo’s board names the
congressional oversight and interest.
chief operating officer, Timothy Sloan, as the new CEO.
This In Focus provides a brief overview of federal
December 2016: As a consequence of deficiencies in
regulation of Wells Fargo and a timeline of key events
Wells Fargo’s “living will,” regulators restrict Wells
involving the company. It then discusses a few relevant
Fargo’s ability to grow its business. P.L. 111-203 (often
policy issues, including consumer protection, corporate
called the Dodd-Frank Act) requires certain companies
governance, and recent congressional oversight of the bank.
to submit a living will to regulators to show how large
banks would unwind themselves in the event of a large
Overview of Regulation
financial loss.
Similar to other large banks, several federal financial
regulators have overlapping oversight authority of Wells
2017
Fargo. Although the Office of the Comptroller of the
March 2017: The OCC downgrades Wells Fargo’s
Currency (OCC), Federal Reserve, and Federal Deposit
Community Reinvestment Act (CRA) rating to “needs
Insurance Corporation (FDIC) each have safety and
to improve,” from “outstanding” due to Wells Fargo’s
soundness authority, the OCC is the primary prudential
regulator of Wells Fargo’s bank subsidiary. The OCC
discriminatory and illegal credit practices, including the
regulates Wells Fargo’s
fake accounts scandal.
internal controls, its management
of operational and reputational risks, and its deposit and
April 2017: The Sales Practices Investigation Report
lending activities. The Federal Reserve has authority over
(SPIR) issued by Wells Fargo reveals that the bank’s
the bank holding company. The Consumer Financial
board of directors and bank executives knew of many of
Protection Bureau (CFPB) regulates and supervises Wells
the issues underlying the fake accounts scandal as far
Fargo for consumer protection compliance.
back as 2002.
Key Events
July 2017: Wells Fargo admits that it charged about
The following provides a timeline of selected events since
570,000 customers for auto insurance on car loans
the Wells Fargo fake accounts scandal broke.
without verifying whether these customers already had
2016
existing insurance. As a consequence, up to 20,000
customers may have defaulted on their car loans.
September 2016: Wells Fargo pays $185 million in fines
to the CFPB, OCC, and the City and County of Los
October 2017: Wells Fargo admits it wrongly fined
Angeles for creating about 1.5 million unauthorized
110,000 mortgage clients for missing a deadline, even
deposit and 623,000 credit card accounts in customers’
though the delays were the bank’s fault.
names without their knowledge. Wells Fargo also
discloses that it previously fired 5,300 employees for
2018
their involvement in creating these fake accounts.
February 2018: The Federal Reserve restricts Wells
Fargo’s growth until it improves its governance and
In coordination with the Department of Justice (DOJ),
controls. Wells Fargo announces it will replace four
the OCC assesses $20 million in civil money penalties
members of its board by the end of the year.
against Wells Fargo for violating the Servicemembers
Civil Relief Act (SCRA; P.L. 108-189). Violations
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Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
April 2018: Wells Fargo, CFPB, and OCC reach a $1
undergo an independent consultant’s review of its consumer
billion settlement of issues related to Wells Fargo’s
compliance practices, including its sales practices, and
auto-loan insurance and mortgage practices.
develop a plan to improve its consumer compliance
management. In 2018, as additional consumer protection
July 2018: Reportedly, Wells Fargo refunded millions
concerns were revealed, the consent order required Wells
of dollars for charges related to add-on services, such as
Fargo to develop a robust enterprise-wide compliance risk
pet insurance and legal services, it added onto
management plan and perform an internal audit.
customers’ accounts without the customers’ full
knowledge.
Corporate Governance
Wells Fargo is a publicly traded firm, which means that it
August 2018: Wells Fargo pays a $2.1 billion fine to
must comply with securities laws and corporate governance
DOJ for misrepresenting the type of mortgages it sold to
rules from the SEC. A major component of corporate
investors between 2005 and 2007. Wells Fargo discloses
governance is the business environment created by the
that it incorrectly denied loan modifications for 625
board of directors and senior management.
people, 400 of whom had their homes foreclosed.
2019
As a result of the events described above, some have raised
issues with how Wells Fargo’s senior leadership
Timothy Sloan resigns as CEO in March, after the OCC
emphasized cross-selling products and meeting specific
made a rare public rebuke of the bank. Throughout 2019
sales goals. Reportedly, employees felt pressure to sell
other key executives leave the company. Charles W.
unneeded products to customers and open unauthorized
Scharf becomes the CEO and president in October.
accounts due to an aggressive sales culture and performance
management that focused on cross-selling. The report
2020
suggests Wells Fargo’s decentralized corporate structure
might have obscured the scale and nature of the underlying
January 2020: The OCC issues lifetime prohibition
problems. This structure allowed parts of the bank to
from participating in the banking industry and new civil
operate without oversight, impeding corporate risk
money penalties (CMPs) to two former senior
management functions. A second area of concern is how
executives; John Stumpf ($17.5 million) and Carrie
late Wells Fargo disclosed to investors the potential damage
Tolstedt ($25 million). OCC also issues other
to the bank from these events.
prohibitions or cease and desist orders along with CMPs
to other former key executives.
In addition to the departure of several key executives, to
It is reported that the Treasury Department’s Office of
address concerns about the bank’s corporate governance
Inspector General (IG) has been assessing OCC’s
issues, the majority of the board members have been
actions in connection with sales practices at Wells Fargo
replaced.
and expects to release its report sometime in 2020.
Congressional Oversight
February 2020: Wells Fargo agrees to pay $3 billion to
The various Wells Fargo developments highlight a number
resolve criminal and civil investigations into its past
of issues for potential congressional oversight relating to
sales practices to the Department of Justice (DOJ) and
the performance of federal financial regulators and banks
the Securities and Exchange Commission (SEC). The
that are considered “too big to fail.” On the one hand,
SEC is expected to distribute about $500 million of the
several regulators, such as the OCC and the CFPB, had
$3 billion to the investors. As part of the settlement,
supervisory authority over Wells Fargo, yet did not detect
DOJ has agreed to defer prosecution for three years if
widespread fraudulent practices that occurred over an
Wells Fargo abides by certain conditions.
extended period of time. On the other hand, since 2016, the
OCC, the CFPB, and the Federal Reserve have issued
Consumer Protection
consent orders limiting the bank’s growth and requiring it
As a result of the various issues described above, federal
to make changes in its consumer protection and corporate
regulators entered into multiple consent orders with the
governance practices. Critics continue to assert that
bank to address the harm to consumers and to strengthen
regulatory enforcement measures against Wells Fargo have
Wells Fargo’s consumer compliance risk management.
been too focused on assessing fines rather than on other
measures, including breaking up the bank. Regulators also
These consent orders required Wells Fargo to set aside
have increased their scrutiny of financial institutions’
funds to compensate harmed consumers. Some forms of
culture and compliance management practices for all
financial harm caused by Wells Fargo may be relatively
examined institutions. Congress continues to examine
straightforward to identify, such as fees that individuals
issues surrounding Wells Fargo by holding hearings and
paid on unauthorized accounts. Other forms of harm,
taking testimony from Wells Fargo executives and from
however, may be more difficult to identify and measure,
bank regulators.
like effects on a consumer’s credit score.
Cheryl R. Cooper, Analyst in Financial Economics
As part of these consent orders, Wells Fargo has also
Raj Gnanarajah, Analyst in Financial Economics
agreed to take actions to improve the bank’s consumer
compliance risk management. In 2016, the bank agreed to
IF11129
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Wells Fargo—A Timeline of Recent Consumer Protection and Corporate Governance Scandals
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