Bad Examples Make Good LessonsLearning from Wells Fargo

6/6/2018 - By Sarah Oliver, CRCM

Welcome to a short case study on Wells Fargo’s (Wells) latest bungle in the land of consumer compliance. Hopefully this short read will save your institution about a billion dollars, or the latest civil money penalty charged to Wells as the result of the two publicly cited issues. You’re busy. I know. So allow me to break down the thirty-five page consent order filed April 20, 2018 by the Consumer Finical Protection Bureau (CFPB) against Wells.

Charging Rate Lock Extension Fees in a Manner Inconsistent with Previous Disclosure

Issue: Borrowers were charged rate lock extension fees in cases of lender-caused delays. Wells deviated from its own policy of not charging borrowers rate lock extension fees when the delay was caused by the lender itself. This practice took place from September 2013 through February 2017. It was exposed during “an internal investigation and loan reviews”.

Root Cause: Described in the consent order as an issue of ambiguous guidelines issued to and used by loan officers.

Bright Spot: Bank appears to have identified the issue (finally), self-corrected, and voluntarily began remediation.

Force-Placed Automobile Insurance Practices

Issue: Wells used a third-party vendor to manage its force placement of insurance on collateral-automobiles. Between October 2005 and September 2016, the vendor failed to cancel force placed policies even after receiving adequate proof of insurance by borrowers. Wells failed to refund duplicative coverage insurance premiums and related fees. In the consent order the lender estimates hundreds of thousands of customers were erroneously impacted, and that these actions may have contributed to at least 27,000 faulty vehicle repossessions.

Root Cause: All appearances seem to indicate inadequate vendor oversite despite reports from its vendor that should have raised red flags. The CFPB writes that Wells “knew or should have known that it had ineffective processes that were likely to result in (Wells) unnecessarily placing or maintaining force placed insurance, either for the entire term of the policy or for a portion of the term of the policy.” Additionally, Wells was accused of failing to provide data and information to its vendor that could have allowed the vendor to fulfill its obligations under the vendor agreement.

Bright Spot: You can discuss this with your board as an example of Vendor Management Gone Wrong. The consent order contains further discussion on the importance of vendor management in the consent order.

Both of the issues above resulted in a claim that Wells engaged in unfair acts and practices in violation of the Consumer Financial Protection Act. 12 U.S.C. §§ 5531(c), 5536(a)(1)(B). The consent order ends with over forty conditions Wells must satisfy concerning oversight, remediation, and reporting. Ask yourself: "When is the last time we reviewed policies and procedures to ensure clear and transparent efforts?" "How would my oversight of client facing vendors hold up against regulator scrutiny?"

If you have any questions about this article that you would like to discuss, please do not hesitate to email me or any member of our Financial Institutions Consulting Team.

About the Author | Sarah Oliver, CRCM
Sarah is a consultant in the Financial Institutions Advisory Group of Saltmarsh, Cleaveland & Gund. Her primary areas of expertise include providing compliance reviews, assisting with special research matters and consulting on deposit and lending related regulations as well as social media approaches for financial institutions.

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