Democrat Senator Elizabeth Warren has written a letter to the Federal Reserve urging it to break up Wells Fargo. Wells Fargo is the third-largest bank in America in terms of assets. Warren sits on the Senate Committee on Banking, Housing, and Urban Affairs.
In the letter addressed to Federal Reserve Chairman Jerome Powell, Warren asked the agency to take “immediate action” in response to Wells Fargo’s “inexcusable failure” to eliminate “abusive and unlawful practices” that have cost American consumers hundreds of millions of dollars.
The letter stated that the Fed had placed Wells Fargo under an asset cap in 2018 due to the firm’s “widespread consumer abuses” and other compliance issues. In the three years since Wells Fargo has continued with its “unethical and anti-consumer conduct.” Allowing Wells Fargo to continue in its current form poses “substantial risk” not just to consumers but to the American financial system as well.
Warren asked the Federal Reserve to revoke Wells Fargo’s status as a Financial Holding Company (FHC) and mandate that the company separates its banking subsidiary from other financial activities. To achieve this, the Fed would have to use its authority under the Bank Holding Company Act. Warren also wants Wells Fargo to develop a plan to make sure that the bank’s 65 million customers using its consumer banking and lending services are protected through the transition.
“Every single day that Wells Fargo continues to maintain these depository accounts is a day that millions of customers remain at risk of additional negligence and willful fraud. The only way these consumers and their bank accounts can be kept safe is through another institution—one whose business model is not dependent on swindling customers for every last penny they can get. The Fed has the power to put consumers first, and it must use it,” Warren said in a Sept. 13 letter. The senator cited several examples of Wells Fargo’s anti-consumer behavior:
- Between Jan. 2012 and July 2016, over 800,000 people who had taken car loans from the bank were charged with auto insurance they never needed. As a result, 274,000 customers went into delinquency and 25,000 wrongful vehicle repossessions were carried out.
- A report from Feb. 2019 showed that employees at Wells Fargo Wholesale Banking Division falsified signatures of clients and doctored paperwork from 2016 in a bid to comply with a legal settlement.
- In Aug. 2019, it was reported that Wells Fargo was closing customer accounts without having the necessary authorization. The bank subsequently charged overdraft fees on these accounts.
- In Feb. 2020, the U.S. Securities and Exchange Commission (SEC) charged Wells Fargo investment units for recommending certain investments to retail clients without following necessary compliance policies and procedures.
- An investigation by Warren’s own staff in summer 2020 showed that Wells Fargo had put up to 1,600 customers into “forbearance” on their mortgages without gaining their consent. The decision potentially affected these people’s ability to refinance mortgages and the status of credit reports.
Warren’s letter comes after the Office of the Comptroller of the Currency (OCC) charged Wells Fargo a $250 million civil penalty due to the bank’s “unsafe and unsound practices.” The bank’s management of its mortgage business was so bad that it might have incorrectly foreclosed some of its customers’ homes.
“Wells Fargo has not met the requirements of the OCC’s 2018 action against the bank. This is unacceptable,” Acting Comptroller of the Currency Michael J. Hsu said in a statement. The OCC’s civil action also placed restrictions on the bank’s future activities until it had properly addressed existing problems in its mortgage business.
On Sept. 13, the OCC also kicked off its civil trial of three former executives of Wells Fargo for their roles in a scandal that involved the use of millions of unauthorized or fraudulent customer accounts. OCC has asked for $19 million in damages to settle the matter. In addition, one of the executives is to be disbarred from the banking industry.
“This hearing represents the culmination of the OCC’s longstanding efforts to hold these individuals accountable for material failures in risk management and for consumer harm,” the OCC said in a statement.