On Tuesday, Wells Fargo disclosed that the Office of the Comptroller of the Currency (OCC) downgraded the bank’s latest Community Reinvestment Act Performance Evaluation rating to “needs to improve,” the second-lowest of four possible ratings.
Enacted by Congress in 1977, the Community Reinvestment Act requires banks to make loans in the communities where they do business and is intended to promote lending in low- and moderate-income neighborhoods.
According to the OCC, its investigation revealed “an extensive and pervasive pattern and practice of discriminatory and illegal credit practices across multiple lines of business within the bank, resulting in significant harm to large numbers of consumers.”
The downgrade was substantially the result of previous regulatory consent orders and practices that have caused harm to consumers throughout the country. In its report, the OCC identified at least ten different examples Wells Fargo practices and “egregious” violations that harmed borrowers, including:
- Noncompliance with the Fair Housing Act and the Equal Credit Opportunity Act based on Wells Fargo’s practice of racial discrimination that occurred between 2004 and 2008. In July 2012, Wells Fargo entered into a consent order with the Department of Justice to settle the matter for $125 million.
- Unfair or deceptive acts or practices in violation of section 5 of the Federal Trade Commission Act. Between January 2004 and June 2008, bank employees allegedly steered potential prime borrowers into more costly subprime loans and falsified income information in mortgage applications. In July 2011, Wells Fargo entered into a consent cease and desist order with the Board of Governors of the Federal Reserve System and agreed to compensate affected borrowers and pay an $85 million civil money penalty.
- Unfair and deceptive practices in violation of the Consumer Financial Protection Act. Wells Fargo’s Education Financial Services division allocated partial payments in a manner that unfairly maximized fees incurred by many consumers and provided billing statements that described how partial payments would be treated in a deceptive manner. Wells Fargo provided $410,000 in relief to affected borrowers and paid a $3.6 million civil money penalty to the CFPB.
- Noncompliance with Section 8(a) of the Real Estate Settlement Procedures Act. Wells Fargo was required to pay $10 million in total remediation to customers who may have been harmed and a $21 million civil money penalty to the CFPB.
The announcement of the downgraded rating came on the same day that Wells Fargo agreed to a $110 million settlement to resolve a class-action lawsuit over its creation of unauthorized customer accounts. Last September, Wells Fargo admitted that employees who were trying to meet aggressive sales goals had opened as many as two million fraudulent accounts over the course of several years.
The class action lawsuit is in addition to previous regulatory enforcement action. The illegal banking practices already have cost Wells Fargo $185 million in fines, including a $100 million penalty from the CFPB, $50 million to the City and County of Los Angeles, and $35 million to the OCC.
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