A federal regulator criticized Wells Fargo for engaging in unfair and deceptive practices and failing to manage risks, and said it had not set aside enough money to pay back the customers it harmed.
The confidential report, prepared by the Office of the Comptroller of the Currency and reviewed by The New York Times, criticizes Wells Fargo for forcing hundreds of thousands of borrowers to buy unneeded auto insurance when they took out a car loan, as well as its handling of the problems once they were detected.
The regulators’ report, sent to the bank this week, is preliminary. Still, it represents the latest blow to the reputation of Wells Fargo, America’s third-largest bank and one that was once regarded as being among the best run in the country. The bank is still trying to recover from a scandal in which its employees created millions of credit card and bank accounts that customers had not requested, eventually leading to the ouster of the bank’s chief executive and millions of dollars in regulatory fines.
The comptroller’s findings could have a significant impact on the bank. The report stated that Wells Fargo had most likely underestimated how much it would cost to reimburse harmed customers. And it could force the bank to curb, or at least more closely monitor, its practices across the entire company.
Wells Fargo’s improper auto insurance practices came to light in July, after The Times obtained an internal report prepared for the bank’s executives. That analysis showed that more than 800,000 people who took out car loans from Wells Fargo were charged for auto insurancethey did not want or need, typically because they already had coverage.
That internal report said the costs of the unneeded insurance, which covered collision damage, had caused some 274,000 Wells Fargo customers to fall behind on their car loans, and almost 25,000 vehicles were wrongly repossessed. Customers on active military duty were among those hurt by the practice.
In the comptroller’s report, regulators said management at the bank’s auto loan unit, Wells Fargo Dealer Services, had ignored signs of problems in the business such as consumer complaints, focusing instead on sales volume and performance. The report described its management of compliance risk — essentially the ability to abide by regulations and best practices — as “weak.” It noted that Wells Fargo in 2015 had characterized the risks associated with this business as “low.”
Wells Fargo has set aside $80 million to compensate the 570,000 customers it said were harmed by receiving auto insurance they didn’t want. The comptroller’s office said that the amount was inadequate and that the bank might have to pay out substantially more as additional victims were identified — partly because Wells Fargo’s analysis of how much money it needed to set aside excluded many years when the insurance was being imposed.
The report does give Wells Fargo’s management credit for taking action after identifying the problems at the auto loan unit, such as hiring legal and consulting firms to assess customer harm, changing staff at the operation and notifying regulators.
The comptroller’s findings are likely to affect how Wells Fargo does business, not just in the auto lending operation but across the bank. The comptroller’s office said it would require Wells Fargo to ensure that all of its business units had effective systems in place to identify and prevent risky practices.
Catherine Pulley, a Wells Fargo spokeswoman, said in a statement that the bank had made significant changes in recent months to strengthen controls and oversight of insurers and outside vendors with which it does business.
“We are also working to enhance our customer care program and improve complaints resolution,” she said. “We will continue to work with regulators on the remediation and make improvements to our auto lending business to build a better Wells Fargo.”
Wells Fargo stopped the auto insurance program in September 2016.
Once the Office of the Comptroller of the Currency makes its findings formal, Wells Fargo will have time to correct the problems. A spokeswoman for the comptroller’s office declined to comment on the report.
The report did not mention penalties or fines. The comptroller can impose penalties for violations of laws or unsound business practices in an attempt to deter violations and encourage corrective measures.
Last year, the comptroller’s office came under scrutiny for its own failures to supervise Wells Fargo. A report in April by the office’s ombudsman concluded that the agency “must continue our efforts to improve and refine the agency’s supervisory program, to sharpen our early warning processes, and to enhance our supervisory capabilities.”
Wells Fargo is facing turmoil elsewhere. On Friday, the bank said that four foreign-exchange bankers in its investment banking unit had left and another executive had been reassigned. The moves were first reported by The Wall Street Journal, which said, citing anonymous sources, that they were part of a regulatory investigation into the bank’s foreign-exchange operations.
The comptroller’s review of Wells Fargo’s auto lending and insurance practices has been underway for several months.
The report paints a damning picture of a bank that didn’t monitor its contractors, that lacked the impetus to correct problems once they were uncovered and that proved unresponsive to complaints from its customers.
For example, the comptroller cited extensive lapses in Wells Fargo’s oversight of National General, an insurer with which it had contracted to underwrite the auto insurance. National General was not obligated to — and did not — alert Wells Fargo to customer complaints about the unneeded insurance, the report said.
And when auditors at Wells Fargo detected and then flagged problems with National General in 2015, the comptroller’s office said, the bank didn’t act on those concerns promptly.
Christine Worley, a spokeswoman for National General, disputed elements of the report. “We believe that our customer service in this area was handled in a timely manner,” she said in a statement. “We work closely with our financial institution clients and advise them of complaints on a regular basis.”
The bank’s lapses in handling consumer complaints and managing vendors are not new. Regulators in recent years had ordered Wells Fargo to improve its oversight in both areas.
Wells Fargo’s ability to track consumer complaints efficiently, for example, had been part of a 2015 compliance-improvement plan at the bank, the report noted. And a so-called consent order in 2011 between Wells Fargo and the comptroller’s office involving the bank’s mortgage foreclosure operations required it to establish a more effective program to manage its relationships with outside companies and contractors.
The comptroller’s office also concluded that the bank’s plan to compensate customers who were harmed by the improprieties was insufficient. When calculating potential damages, the bank limited its payments to customers who were affected beginning in January 2012 and extending to July this year. But the auto insurance program has been in place for almost 12 years, and the bank didn’t calculate potential damages caused for much of that period.
“The number of customers harmed in this time period could be substantial,” the report said.
Wells Fargo also used “an overly complicated reimbursement methodology which lacked clear support for addressing all the customer costs incurred,” according to the report.
Wells Fargo’s auto insurance practices violated a section of the Federal Trade Commission Act that prohibits unfair or deceptive acts in commerce, the report said. For example, the bank did not break out the insurance costs embedded in car loans; rather, it included the amounts owed on the unneeded coverage in the monthly payments. Had borrowers known what the cost increases were for, the comptroller’s office said, they could have taken action more quickly to avoid harm.
Even when Wells Fargo borrowers notified National General that they already had car insurance, they had trouble reversing the erroneous charges. The comptroller office’s review of loan files and consumer complaints showed that Wells Fargo’s customers often had to submit proof of coverage multiple times before the coverage was canceled.
October 20, 2017
How Corrupt Are American Institutions?
Blame Sean Hannity. Or give him all the credit. The intrepid talk show host has been claiming for months that there is nothing to the Trump-Russia allegations, that the real tale of Russian collusion is linked to Hillary Clinton. The fact that very few people have taken this seriously has only caused the firebrand conservative to dig in deeper and repeat his talking points both more often and more fervently.
His insistence the Russian story would “boomerang” against the Democrats has been largely based on his communications (both on- and off-air) with Julian Assange and investigative reporters John Solomon and Sara Carter.
It seems like only yesterday justice was closing in on the Travel Office, Whitewater, the Clinton-era transfer of missile technology to the Chinese government, Fast and Furious, Solyndra, IRS harassment of conservative groups, the Clinton emails, Benghazi and a dozen others.
We might have believed Sean Hannity’s predictions, but we’d seen this movie before. Then came Tuesday. John Solomon and Alison Spann of the Hill and Sara Carter of Circa News had a story that may have broken open the largest national security scandal since the Rosenbergs.
In 2009, the Obama Justice Department began investigating a Russian plan to expand Russia’s atomic energy business by acquiring uranium in the United States. Through bribery, kickbacks, money laundering and extortion, the Russians were able to acquire 20% of the uranium mining rights in the United States. Shareholders in the Russian firm Rosatom funneled $145 million to the Clinton Foundation in the months leading up to the Obama administration’s approval of the transaction.
The sale was officially approved in 2010 by the Committee on Foreign Investment in the United States (CFIUS), whose members included both Secretary of State Hillary Clinton and Attorney General Eric Holder. Apparently neither Holder nor Clinton informed the other members of the committee just what an historic act of corruption they were participants to. Not only did the DOJ and FBI let the sale proceed, they sat on the information they had gathered and let the investigation drag on until 2015, when Rosatom executive Vadim Mikerin and other defendants reached plea deals to little fanfare.
Current Deputy Attorney General Rod Rosenstein oversaw the FBI’s investigation, as did Andrew McCabe, the current deputy FBI director. And the man in charge of the FBI during most of the Rosatom investigation was none other than Robert Mueller, the special counsel now investigating Russian influence in the 2016 election.
The government informant at the heart of the case was (and remains) forbidden to speak to Congress by an Obama Justice Department gag order (that gag order has yet to be lifted by the Trump Justice Department).
If this story is true, then all our worst fears have been confirmed, and we are indeed living in a banana republic, with one set of rules for the rich and powerful, and another set of rules for everybody else.
The question going forward: what kind of country will we live in tomorrow? Now that we know that Russian collusion is real and that the Obama administration engaged in it, what will be done about it? Will the laws against government corruption finally be enforced, or will the guilty walk again as we’re treated to another round of Congressional committee show hearings?
This scandal will be a true test -- perhaps the final test -- of whether American government can still work for the people. If Republicans walk away from this story for fear of ruffling Democrat feathers, we will know that the fix is in.
A lot of reputations are on the line, beginning with that of Donald Trump. Will he demand of his administration that it faithfully execute the law, without fear or favor.
Then there’s Jeff Sessions. Our attorney general will have to determine if the Trump DOJ has the stomach to investigate the Obama DOJ. Sessions has a chance to end this affair with a reputation as a true champion of law and order. Then again, he may cement his image as a chivalrous knight of old, merciless to peasants who cross borders and deal drugs, but always ready to give his social and political peers the benefit of the doubt.
Congress’ reputation is on the line, too. Paul Ryan, Mitch McConnell and the rest of the GOP will have a lot to answer for if they fail to demand answers to hard questions. This isn’t a game of pin-the-tail-on-the-Trump anymore. The implications of the Clinton/Rosatom story can’t be overstated, and Congress must lead the charge in determining whether Andrew McCabe, Rod Rosenstein, and Robert Mueller should now have any role in an investigation dealing with Russian influence, and more importantly, whether they should have any role in government at all.
And finally, there’s the media. The New York Times recently announced an ad campaign with the slogan: "the truth is more important than ever." It’s time to prove it. If Russian collusion was a problem yesterday – and the media has breathlessly told us this for ten months – then Russian collusion is a problem today, and the Clinton story should get all the attention the Trump story received and then some, especially seeing as how there’s actual evidence in the Clinton story. It’s probably too much to hope that the media will flip on the Democrats and report the truth, but if justice runs its course while the media pretends there’s nothing to see here, folks, then whatever shred of credibility the press has remaining will be gone.
The early returns aren’t promising. The relentlessly tweeting Trump hasn’t mentioned the story as of this writing. Jeff Sessions, in Capitol Hill testimony on Wednesday, offered only a cryptic statement that he would “review” Charles Grassley’s request that he look into the Clinton matter. (The ever-disappointing Sessions also suggested that Rod Rosenstein might be in charge of reviewing the propriety of an investigation that was led by Rod Rosenstein). On the bright side, Grassley’s committee has opened an inquiry into the matter, but then again, it’s hard to imagine a satisfying outcome to a story that begins with “Grassley’s committee has opened an inquiry…” As for the non-Hannity media, the Clinton story was met with stony silence (no denials, just silence). The big story Wednesday was not $145 million in bribes to the Clintons, but rather a controversy about whether Trump said something inappropriate or awkward to the wife of a soldier killed in battle during a phone call in which Trump offered his condolences.
If we are to remain a country of laws and not of men, the people we’ve chosen to uphold our institutions are going to have to do better than this. It’s one thing if our system of justice and our national security have been put up for sale; it’s quite another if the politicians and bureaucrats who did it face no consequences.
How corrupt are American institutions? We’ll know very soon.
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