Wells Fargo & Company’s ( WFC Quick Quote WFC - Free Report) looming $1.95-billion asset cap is likely to stay put “until the firm has comprehensively fixed its problems,” Federal Reserve Chair Jerome Powell said in the September FOMC press conference when asked about Senator Warren’s letter last week that urged the Fed to break up the Wall Street biggie.
Jerome Powell noted that the Fed is closely keeping an eye on the remedial efforts by Wells Fargo to mend its "widespread and pervasive" problems. The central bank continues to hold the company accountable for its deficiencies and will take stringent necessary actions if it fails to undertake corrective steps. Hence, the unprecedented asset cap placed on the bank in 2018 will continue to hinder its growth.
Legal hassles escalated for Wells Fargo on Sep 9 when the Office of the Comptroller of the Currency (“OCC”) assessed a $250-million civil money penalty on the company on the grounds of “unsafe or unsound practices” related to the home-lending loss mitigation program. With the failure of the program, which required the bank to repay customers who were charged excessive or improper fees, the company has violated the terms of the 2018 consent order that condemned its risk management systems.
In addition to the hefty fine, the company has been slapped with an enforcement action, with the OCC issuing a cease and desist order to curb the bank’s future activities until ongoing mortgage servicing concerns are appropriately dealt with.
However, in the following week, U.S. Senator Elizabeth Warren addressed a letter to the Fed, urging the central bank to revoke Well Fargo’s license as a financial holding company.
The senator stated that the latest $250-million fine against the bank shows it to be an "irredeemable repeat offender". Hence, the company’s core traditional banking activities should be separated from its other financial services and Wall Street operations. This will ensure that the bank’s customers stay protected until its transition is completed.
Nonetheless, since legal hassles have been snowballing on the company, it has undertaken numerous initiatives and achieved regulatory milestones. Specifically, Wells Fargo has bifurcated three business groups into five and created four Enterprise Functions to propel greater oversight and transparency. It also launched an enterprise-wide risk and control self-assessment program to evaluate operational risks and controls as well as design appropriate mitigating controls.
The company’s 2016 consent order, which was issued by the Consumer Financial Protection Bureau in relation to the bank’s retail sales practices, was terminated last week.
Moreover, this January, the OCC terminated a 2015 consent order related to the Wall Street giant’s Bank Secrecy Act/Anti-Money Laundering compliance program. In May 2020, the OCC upgraded the company’s Community Reinvestment Act rating to "outstanding".
Further, shares of this Zacks Rank #3 (Hold) company have outperformed its
industry over the past six months, gaining 24% compared with the industry’s rally of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Several finance companies continue to encounter legal hassles and are charged with huge sums of money for business malpractices.
Mitsubishi UFJ Financial Group’s ( MUFG Quick Quote MUFG - Free Report) U.S. banking unit, MUFG Union Bank NA, has been recently slapped with a cease-and-desist order by the OCC over its unsound technological practices. Credit Acceptance Corporation ( CACC Quick Quote CACC - Free Report) announced the settlement of a lawsuit with the Massachusetts Attorney General and agreed to pay $27.2 million. In August 2020, AG Maura Healey filed a lawsuit in Suffolk County Superior Court, claiming that the company violated state consumer protection, and debt collection laws and regulations. Charles Schwab ( SCHW Quick Quote SCHW - Free Report) had been slapped with a class-action lawsuit over violations of its fiduciary duty by placing its interest before the protection of its clients through the bank’s robo-adviser Schwab Intelligent Portfolios’ cash sweep program. The case, filed in the U.S. District Court in Northern California, also accused the company of breach of contract and the violation of state laws.