Republican report accuses consumer bureau of going easy on Wells Fargo

The Consumer Financial Protection Bureau could have fined Wells Fargo & Co. more than $10 billion for its illegal sales practices but instead settled for $100 million, according to the agency’s internal documents released by congressional Republicans this week.

The CFPB also had evidence that the bank’s sales problems went back to at least 2006 — far earlier than the 2011 to 2016 timetable that Wells Fargo originally admitted to, the documents show.

“The bank knew since at least 2006 that its employees were gaming its incentive compensation program, yet failed to take actions sufficient to stop it,” CFPB employees wrote in a 2016 confidential memo.

The documents were released as part of a politically charged report by the staff of the House Financial Services Committee chairman, Rep. Jeb Hensarling (R-Texas). Hensarling is a critic of the CFPB who, along with other House Republicans, has called for the firing of CFPB Director Richard Cordray — an appointee of President Obama — and for new laws to curtail the bureau’s authority over the financial services industry.

It would take months for San Francisco-based Wells Fargo to admit publicly that its sales practices problems, in which employees trying to reach unrealistic sales goals opened accounts in customers’ names without those customers’ knowledge or permission, began earlier than 2011. At first, Wells Fargo’s then-chief executive, John Stumpf, agreed to expand the bank’s internal investigation to 2009. When testifying in front of Congress in September 2016, he was reluctant to go back further than that.

Eventually — in a report issued by the bank’s board of directors this year, roughly seven months after the CFPB’s fine — Wells Fargo would admit the sales practice problems began as early as 2002.

It is not clear why the CFPB chose 2011 as the original cutoff date for getting Wells Fargo to admit its sales practice problems. A Wells Fargo spokeswoman declined to comment on the date issue but said the bank is reviewing the report.

CFPB employees estimated that based on the 2 million unauthorized accounts that Wells Fargo’s employees had opened, the penalty against the bank could be in excess of $10 billion before taking into account mitigating factors. That’s according to a confidential memo written to Cordray in July 2016 that outlined potential sanctions the bureau could take against the bank.

CFPB employees ultimately recommended a $100-million fine against Wells Fargo — representing the largest fine ever levied in the CFPB’s history at the time — to “sufficiently deter similar violations” by the bank and its competitors. That amount was adopted by the agency when it publicly announced its order against Wells Fargo in September 2016.

The bank also paid $83 million in fines to the Los Angeles city attorney’s office and the federal bank regulator the Office of the Comptroller of the Currency for its sales practice violations. That brought the fines to a total of $183 million.

The report and publicly disclosed documents are meant to imply that the CFPB went easy on Wells Fargo.

Cordray accused House Republicans of “Monday morning quarterbacking.”

“The fact is that the CFPB worked effectively with our partners to expose the Wells Fargo scandal and put a public spotlight on their practice of secretly opening unauthorized accounts,” Cordray said in a statement. “In response, we levied our largest fine ever and secured broad, nationwide relief for consumers.”

The Los Angeles city attorney’s office, which has been credited with starting the first investigation into Wells Fargo in 2013, did not agree with Republicans’ argument that the CFPB was asleep at the wheel regarding Wells Fargo.

“The CFPB was integral to our collective work holding Wells Fargo accountable for fake accounts, including assuring Wells’ customers across the nation were made whole,” said City Atty. Mike Feuer said.

Wells Fargo’s improper sales practices were first reported by the Los Angeles Times.

UPDATES:

2:50 p.m.: This article was updated with comment from the L.A. city attorney’s office.

2:20 p.m.: This article was updated throughout with additional details, comments and background information.

This article was originally published at 2 p.m.