Wells Fargo Might Be Hit With Massive Fine By Regulator
Zacks Investment Research | Apr 09, 2018 10:14PM ET
Per a Reuters article, Wells Fargo & Company (NYSE:WFC) 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.
Get The News You Want
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 (NASDAQ:FITB) 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 .
M&T Bank Corporation’s (NYSE:MTB) 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 (NASDAQ:BOKF) 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.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.