Consumer advocates greeted the $1 billion penalty against Wells Fargo & Co. federal regulators announced April 20 with a mix of relief and concern that the Consumer Financial Protection Bureau is still pulling back on enforcement efforts.
The settlement, done in conjunction with the Office of the Comptroller of the Currency, was the first enforcement action undertaken by the CFPB under acting Director Mick Mulvaney, who took over leadership of the bureau in late November.
Consumer advocates worry that Mulvaney had sidelined the CFPB’s previously aggressive enforcement division. A subtle change to settlement language and the specific facts of this case do little to alleviate those concerns. Wells Fargo’s conduct had generated widespread public outrage and prompted an unusual tweet from President Donald Trump in December.
“Does this restore my faith in their willingness to bring enforcement action? Not remotely,” Ira Rheingold, the executive director of the National Association of Consumer Advocates, told Bloomberg Law in a phone interview.
The CFPB and the OCC announced the $1 billion settlement with Wells Fargo over improper insurance charges on auto loans and improper fees on mortgage interest rate locks. The scandal-plagued San Francisco-based bank will pay $500 million to each of the agencies.
“As to the terms of the settlement: we have said all along that we will enforce the law. That is what we did here,” Mulvaney said in a statement.
The $500 million payment to the CFPB was the largest settlement amount paid directly to the bureau. The dollar amount was notable, and the mere fact that it was done showed that the CFPB is not entirely sidelined, Lauren Saunders, the associate director of the National Consumer Law Center, said in a phone interview.
“Wells Fargo has been abusing consumers right and left in so many business lines that they deserve to be penalized,” she said.
Going after Wells Fargo as a first enforcement action was almost too easy and not an indication that the CFPB is going to be a tough enforcer, consumer advocates said.
In addition, much of the investigation into the problems came under former CFPB Director Richard Cordray, Rheingold said.
“They had no choice but to go forward with it,” he said.
Twitter may also have boxed in the CFPB and the OCC to act — specifically, a tweet from Trump on Dec. 8.
“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!” Trump’s tweet said.
Mulvaney said in an April 20 appearance on Bloomberg Television that he had not consulted with Trump about the Wells Fargo penalty, and that the tweet had no influence on his actions.
“We preserved the independence of the bureau and I think we followed the law to the T,” Mulvaney said.
Despite those assurances, the mere question of whether the president’s tweets influenced policy making has raised concerns about the enforcement process at the CFPB and other agencies.
“Law enforcement by tweet is a negative and problematic development,” Christopher Peterson, a professor at the University of Utah Law School and a former top CFPB official, said in a phone interview.
The combination of high publicity and potential influence from the president is unlikely to play out for other companies, lowering the potential heat on banks not named Wells Fargo as the CFPB reshapes its enforcement stance, said Donald Hawthorne, a partner with Axinn Veltrop & Harkrikder LLP who handles litigation for large financial institutions.
“There’s nothing in this news that would cause me to lose sleep, particularly if I was sitting in the chair of one of Wells Fargo’s competitors,” Hawthorne told Bloomberg Law in a phone interview.
In addition, CFPB officials and other consumer advocates said a change in the way the bureau handles the restitution portion of the Wells Fargo settlement could have an impact on future enforcement actions.
Wells Fargo will have to pay at least $10 million in restitution to more than 50,000 affected consumers. But in a departure from earlier CFPB practice, the consent order allows Wells Fargo to determine whether consumers suffered “cognizable harm” from the bank’s activities, Peterson said.
The new “cognizable harm” language could blunt the repayments Wells Fargo has to make even though the CFPB will have final say on the remediation plan, Peterson said.
“That’s just backwards. It really gives enormous flexibility to the bank to determine how much money it wants to give back to consumers, and which consumers to give back to,” he told Bloomberg Law.
The CFPB could not be reached for comment about the change to the settlement terms.
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