The Consumer Financial Protection Bureau (CFPB) announced on December 20 that it has ordered Wells Fargo to pay more than $3.7 billion in fines and customer refunds after finding that the bank had for years engaged in unfair and deceptive business practices.
According to the CFPB, Wells Fargo has financially harmed millions of customers to the tune of billions of dollars, including by wrongfully repossessing vehicles, charging illegal fees and interest on auto and mortgage loans, improperly denying mortgage modifications, charging unlawful surprise overdraft fees, improperly freezing customers’ accounts and misrepresenting fee waivers.
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The CFPB’s consent order, filed on December 20, requires Wells Fargo, one of the largest banks in the country, to pay more than $2 billion to customers and $1.7 billion as a civil penalty, reportedly the largest fine ever assessed by the bureau.
Below, we’ll go into more detail about who can expect to receive a payment from the CFPB order, what Wells Fargo apparently did wrong, what changes the bank has been ordered to make, and what to expect if you’re eligible for some cash.
Who will receive cash from the Wells Fargo order?
Under the CFPB’s 32-page consent order, Wells Fargo must pay more than $2 billion to over 16 million customers across several of the bank’s product lines. According to the CFPB, here’s who that relief has been or will be paid to:
- Auto loan borrowers who were affected by Wells Fargo’s servicing failures—including incorrectly applied payments, payment processing problems, and erroneous fees and charges—have already received more than $1.3 billion into their accounts;
- Deposit account holders who were affected by Wells Fargo’s unlawful practices—including those who paid improper monthly service fees, whose accounts were improperly frozen or closed and who were charged improper overdraft fees—will receive more than $500 million; and
- Mortgage loan borrowers who were affected by Wells Fargo’s servicing errors—including those whose loan modifications were improperly denied—will receive at least $195 million.
- Auto loan borrowers who filed valid claims in a class action settlement for a partial refund of guaranteed auto protection (GAP) fees will be paid additional compensation for a full refund of unused GAP coverage, i.e., when a borrower pays off their auto loan with a GAP agreement early;
- Customers whose bank accounts were frozen because Wells Fargo’s automated fraud detection system identified a potentially fraudulent deposit will each receive at least $150;
- Customers who were assessed improper overdraft fees on transactions that were initially authorized by the bank but incurred an overdraft fee at settlement will be refunded a total of $205 million; and
- Customers whose cars were wrongfully repossessed will each receive $1,500 for transportation expenses, $2,500 for non-transportation expenses, reimbursement of repossession costs, compensation for loss of use, and more.
How do I get my payment?
Wells Fargo will be required to pay harmed customers directly, with oversight by the CFPB. As part of the CFPB order, the bank will “cooperate fully” with the bureau to determine who was affected by its conduct and the amount of harm they experienced.
What did the CFPB say Wells Fargo did wrong?
The CFPB’s investigation into Wells Fargo found that the bank had violated the Consumer Financial Protection Act, an amendment to the National Bank Act that prohibits “unfair, deceptive, or abusive” acts or practices.
Specifically, the CFPB determined that Wells Fargo had engaged in unfair and deceptive practices with respect to its auto loan servicing business, home mortgage servicing business and handling of consumer deposit accounts.
According to the CFPB order, Wells Fargo’s auto loan servicing systems experienced “a number of failures” that caused borrowers to pay more than they needed to—or even have their cars improperly repossessed. For instance, the CFPB said that from at least 2011 through 2022, Wells Fargo incorrectly applied borrowers’ auto loan payments, failed to post payments in a timely manner, and charged improper late fees, among other apparent failures. The bank was also accused of improperly repossessing vehicles, failing to provide legally required information to borrowers and failing to sell repossessed vehicles in a reasonable amount of time.
The CFPB order also details certain problems with Wells Fargo’s handling of GAP contracts—a type of debt cancellation contract that essentially cancels a borrower’s remaining loan if their vehicle is stolen or totaled. According to the order, Wells Fargo failed to properly refund borrowers for unused (and prepaid) GAP coverage when they paid off their loans early.
The CFPB’s order goes on to detail Wells Fargo’s apparent missteps in servicing home mortgage loans, some of which were supposedly due to software errors. In one particularly egregious example, errors in the calculation formulas used during the bank’s process for evaluating loan modification applications caused many borrowers who otherwise qualified for a modification to be denied—which, in some cases, led to improper foreclosures. Per the order, “other errors” caused Wells Fargo to assess improper fees and charges against borrowers, fail to pay the correct amount of property taxes, miscalculate interest rates on certain adjustable rate mortgages and fail to provide enough information to borrowers about whether they needed private mortgage insurance.
Finally, the CFPB’s order lays out certain improper acts and practices with respect to Wells Fargo’s handling of consumer deposit accounts. According to the order, the bank, from at least 2011 through October 2016, had a practice of automatically freezing a customer’s entire account when a deposit was identified as possibly being fraudulent, which cut off the individual’s access to their funds for an average of two weeks. Some customers had their accounts improperly closed as a result.
The bank was also accused of misrepresenting the situations in which it would waive customers’ monthly service fees, and charging improper overdraft fees. More specifically, the CFPB says Wells Fargo sometimes assessed an overdraft fee at the time a transaction settled even though the customer’s account had enough funds to cover the transaction at the time it was made. The bureau said fees like this are “not reasonably avoidable” because they go against consumers’ reasonable expectations of when an overdraft fee will be charged.
Was this a class action?
No, the CFPB action against Wells Fargo was not a class action lawsuit. Though class actions are one way that private citizens can obtain relief for alleged violations of the law, they aren’t the only way.
Some government agencies, such as the Consumer Financial Protection Bureau and Federal Trade Commission, are authorized to initiate enforcement actions against companies or individuals who are thought to be violating the law. The Consumer Financial Protection Act, for example, allows the CFPB to investigate and take action against entities who it has reason to believe are violating consumer financial laws.
In some of these cases, the CFPB can order a defendant to both repay, or offer “redress” to, consumers who may have been harmed by its actions and pay a civil penalty. Here, Wells Fargo was ordered to pay consumers more than $2 billion, plus a $1.7 billion fine that will go into the CFPB’s civil penalty fund. The money in this fund can be used to pay consumers who have not been fully compensated for the harm they’ve experienced due to a company’s inability to pay them back.
As part of the CFPB’s order, Wells Fargo must also make certain changes to its business practices, including by maintaining a policy of refunding auto loan borrowers for the unused portion of their GAP contracts, refraining from freezing customers’ accounts when a “less restrictive” action is reasonable, and no longer charging overdraft fees on debit card purchases or ATM withdrawals that are authorized into a positive balance.
CFPB Director Rohit Chopra noted in a statement that the Bureau’s December 20 order and the massive fine against Wells Fargo, who reportedly has $1.78 trillion in assets, is only the first step in fixing the bank’s “fundamental problems.”
“We will continue our work with the other federal banking regulators to end the rinse-repeat cycle of consumer abuse at this firm,” Chopra said. “…Our nation’s banking laws provide strong tools to ensure that insured depository institutions do not breach the public trust, and in the new year we expect to work with our fellow regulators on whether and how to use them.”
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