Wells Fargo’s $142M settlement for phony accounts gets the green light
In an update filed by Reporter Aparajita Saxena in last week’s Insurance Journal, Wells Fargo & Co. reported it had received final approvals from a district court in California to settle a $142 million class-action lawsuit, which compensates customers affected by a sales scandal related to phony bank accounts.
The settlement, which had been preliminarily approved in July 2017, sets aside funds for compensating customers after the bank opened consumer or small business accounts, credit cards or lines of credit without their knowledge between 2002 and April 2017.
What does noncompliance cost?
Plenty. Working to come back from the fallout of two years of investigations, Wells Fargo, the country’s fourth-biggest bank agreed in April to pay $1 billion to settle with regulators who say it forced auto insurance on hundreds of thousands and routinely hit homebuyers with excessive fees. In May, the bank also agreed to pay $480 million to resolve a securities fraud lawsuit filed with the District Court for the Northern District of California which alleged the bank made certain misstatements and omissions in disclosures related to its sales practices.
Chief Executive Officer Tim Sloan said the approvals represent “a significant step forward in making things right for our customers and restoring trust all of Wells Fargo’s stakeholders.” The firm’s marketing/advertising messaging “Earning Back Your Trust,” seeks to reposition the bank and Sloan continues to work to reassure shareholders that the bank is stable and “open for business.”
Will the strategy work? Perhaps, as the market historically a very short attention span and will move onto other, bigger/smaller exposures. Time for penance-paying also is short as consumers have only until July 7, 2018 to claim their monies.
Will Wells Fargo recover?
Probably. But analysts worry the scandal has hurt the bank by distracting executives from the normal business-building tasks at hand, and the impact on the bank’s public image. The bank also said that the mortgage and auto programs together ensnared more than 600,000 customers and would require nearly $300 million in refunds.
In February, the U.S. Federal Reserve imposed a consent order on Wells that restricted it to grow assets beyond the $1.95 trillion it had at the end of last year “until it sufficiently improves its governance and controls.”
Where was Wells Fargo’s compliance?
MIA back then perhaps, but back in the driver’s seat now? Well…maybe. The US Federal Reserve Bank has imposed regulatory restrictions designed to stop the bank’s prior practice of sacrificing compliance to profit, forbidding the bank to grow beyond the $1.95 trillion in assets it had at the end of 2017 “until it sufficiently improves its governance and controls.”
According to a report filed by Reuters Business News in February, regulators rarely step in to intervene in a bank’s operation. But, the central bank said, Wells Fargo’s aggressive business strategy prioritized growth over effective risk management, leading to serious compliance breakdowns.
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