WASHINGTON––The $ 100 million fine the Consumer Financial Protection Bureau imposed on Wells Fargo & Co. for alleged illegal practices involving account openings is the largest penalty in the agency's history and one designed to send a message to the broader financial industry to discourage similar activities.
The CFPB, established after the financial crisis to improve consumer protection, is known for its aggressive enforcement practices against major financial institutions. But the large size of the fine against Wells Fargo puts it in a class of its own. Until now, the largest civil penalty from the bureau was a $ 40 million fine imposed on debt-relief company Morgan Drexen Inc. in March for allegedly charging illegal fees.
"It reflects the severity of these violations, the breadth of the unfair and abusive practices, and how seriously we take them," CFPB Director Richard Cordray told reporters on a conference call. The bureau, along with the Office of the Comptroller of the Currency and Los Angeles City Attorney, announced settlements and consent orders in which Wells Fargo agreed to pay a total of $ 185 million in penalties.
In addition to the CFPB fine, Wells Fargo agreed to pay $ 35 million to the Office of the Comptroller of the Currency and $ 50 million to the City and County of Los Angeles.
The regulators alleged Wells Fargo employees, spurred by sales targets and compensation incentives, secretly opened deposit and credit-card accounts in customers' names. The bank's own analysis showed more than 1.5 million accounts were opened by its employees without consent of the customers. In some cases, funds were transferred from customers' existing accounts, with some 85,000 accounts incurring about $ 2 million in overdraft fees, regulators said. The bank fired about 5,300 employees during the CFPB's examination.
The large fine relative to the rather modest amount of consumer refunds—estimated to be at least $ 2.5 million—highlights the severity of the punishment and the bureau's intention to use the case as a warning for the broader industry, lawyers say. The small amount of restitution also indicates that the actual monetary harm to consumers wasn't significant despite the large number of accounts allegedly created secretly.
In contrast, when the CFPB accused Citibank N.A. of deceptive marketing and unfair billing of credit-card add-on products last year, the bank was ordered to refund roughly $ 700 million to approximately seven million consumers. The fine imposed on the bank was $ 35 million.
Regulators didn't mention any individual employees as violating the civil or criminal law.
The fine paid to the CFPB by Wells Fargo won't be used to compensate customers; the bank will issue them refunds separately. The fine will be deposited into the CFPB's Civil Penalty Fund, a pool of money that can be used for consumer education and financial-literacy programs, as well as to compensate victims in other cases who haven't received full compensation for harm done to them.
Thursday's action was the first time the CFPB has addressed what it sees as illegal sales practices involving signing up existing customers for separate products like deposit accounts and credit cards. In the past, the bureau has taken actions involving credit card "add-on" products where customers were signed up for additional features without their knowledge or consent, as in the Citibank case.
Mr. Cordray said his watchdog agency is paying close attention to potential harm caused by incentive compensation broadly, across sectors such as debt collection and credit card add-on products.
"Today's action should serve notice to the entire industry," Mr. Cordray said. "Any such initiatives should be carefully monitored as a basic element in a company's compliance program, to make sure that the incentives for employees are aligned with the welfare of consumers."
Regulators told reporters on the call that the misconduct at Wells Fargo was widespread across its network nationwide and not contained to the Los Angeles area or in certain branches.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
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