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Wells Fargo Might Be Hit With Massive Fine by Regulator
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Per a Reuters article, Wells Fargo & Company (WFC - Free Report) is likely to face penalty as large as $1 billion due to its wrongdoings in auto insurance and mortgage lending business by the Consumer Financial Protection Bureau (“CFPB”).
Brief on the Two Frauds
The San Francisco-based bank has been accused of pocketing commissions from pushing unnecessary auto policies on its customers. Per Wells Fargo's auto insurance policy terms, drivers who have borrowed money from the bank for a new vehicle, are supposed to carry a policy that would pay off the bank in case of a theft or damage.
However, the bank’s employees have been blamed of forcing such policies on about 570,000 customers, who were already under coverage. Wells Fargo has blamed the third-party vendor by stating that they wrongly layered insurance policies on its auto borrowers. The bank had investigated the matter thoroughly till 2005 and found that it would have to make refunds of about $145 million to borrowers and adjust account balances by another $37 million.
Regarding the mortgage lending probe, Wells Fargo was accused of charging extra fees to customers when their mortgage applications were delayed. The fees in question is rate-lock extension fees, which is supposed to be charged only when borrowers fail to submit documents on time or want to retain the interest rate that initially was quoted for the loan.
However, the bank’s officials levied fees on its customers even though the delay was caused by them. Last year, Wells Fargo had announced that it will refund fees to the affected customers, after a review of the matter.
CFPB Director’s Motive Behind Such Huge Penalty
CFPB’s acting director, Mick Mulvaney, is seeking to penalize the bank with an aim to duplicate the $100 million penalty that was imposed on it to settle the infamous fake accounts scandal in September 2016. The penalty, so far, is the highest the regulator has levied on a bank.
Also, it reiterates President Trump’s opinions on Wells Fargo’s misdeed, which he had voiced through a tweet last December, “Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!”
Road Ahead
Since revelation of the bogus account openings scandal, Wells Fargo has been getting involved in a number of probes. These legal hassles are likely to keep its cost base elevated.
However, the bank has diligently taken remedial measures and initiatives to keep afloat. Also, lower tax rates and rising rate environment might help it overcome the negatives.
Wells Fargo’s shares have lost 4.9% in six month's time versus 5.5% growth for the industry it belongs to.
M&T Bank Corporation’s (MTB - Free Report) earnings estimates for the current year have been revised 1% upward over the last 60 days. Its shares have gained 22.9% in the past year. It carries a Zacks Rank of 2.
BOK Financial Corporation (BOKF - Free Report) witnessed slight upward earnings estimate revision for the current year, over the last 60 days. The company’s shares have soared around 31% in a year’s time. It also carries a Zacks Rank of 2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Wells Fargo Might Be Hit With Massive Fine by Regulator
Per a Reuters article, Wells Fargo & Company (WFC - Free Report) is likely to face penalty as large as $1 billion due to its wrongdoings in auto insurance and mortgage lending business by the Consumer Financial Protection Bureau (“CFPB”).
Brief on the Two Frauds
The San Francisco-based bank has been accused of pocketing commissions from pushing unnecessary auto policies on its customers. Per Wells Fargo's auto insurance policy terms, drivers who have borrowed money from the bank for a new vehicle, are supposed to carry a policy that would pay off the bank in case of a theft or damage.
However, the bank’s employees have been blamed of forcing such policies on about 570,000 customers, who were already under coverage. Wells Fargo has blamed the third-party vendor by stating that they wrongly layered insurance policies on its auto borrowers. The bank had investigated the matter thoroughly till 2005 and found that it would have to make refunds of about $145 million to borrowers and adjust account balances by another $37 million.
Regarding the mortgage lending probe, Wells Fargo was accused of charging extra fees to customers when their mortgage applications were delayed. The fees in question is rate-lock extension fees, which is supposed to be charged only when borrowers fail to submit documents on time or want to retain the interest rate that initially was quoted for the loan.
However, the bank’s officials levied fees on its customers even though the delay was caused by them. Last year, Wells Fargo had announced that it will refund fees to the affected customers, after a review of the matter.
CFPB Director’s Motive Behind Such Huge Penalty
CFPB’s acting director, Mick Mulvaney, is seeking to penalize the bank with an aim to duplicate the $100 million penalty that was imposed on it to settle the infamous fake accounts scandal in September 2016. The penalty, so far, is the highest the regulator has levied on a bank.
Also, it reiterates President Trump’s opinions on Wells Fargo’s misdeed, which he had voiced through a tweet last December, “Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!”
Road Ahead
Since revelation of the bogus account openings scandal, Wells Fargo has been getting involved in a number of probes. These legal hassles are likely to keep its cost base elevated.
However, the bank has diligently taken remedial measures and initiatives to keep afloat. Also, lower tax rates and rising rate environment might help it overcome the negatives.
Wells Fargo’s shares have lost 4.9% in six month's time versus 5.5% growth for the industry it belongs to.
The stock carries a Zacks Rank #3 (Hold).
Stocks to Consider
Fifth Third Bancorp (FITB - Free Report) has witnessed an upward estimate revision of nearly 2% in the last 60 days. Additionally, the stock has rallied more than 30% in the past year. It carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
M&T Bank Corporation’s (MTB - Free Report) earnings estimates for the current year have been revised 1% upward over the last 60 days. Its shares have gained 22.9% in the past year. It carries a Zacks Rank of 2.
BOK Financial Corporation (BOKF - Free Report) witnessed slight upward earnings estimate revision for the current year, over the last 60 days. The company’s shares have soared around 31% in a year’s time. It also carries a Zacks Rank of 2.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>