Washington • The Federal Reserve levied an unprecedented penalty against Wells Fargo on Friday, ordering the mega bank to oust four of its board members and not grow any bigger until it corrects governance problems that led it to widespread consumer abuses.
"We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," Chairwoman Janet Yellen said in a statement.
Wells Fargo said that as part of its consent decree with the Federal Reserve it would submit a plan detailing how it would enhance its governance oversight within 60 days. "We take this order seriously and are focused on addressing all of the Federal Reserve's concerns," Timothy Sloan, Wells Fargo's president and chief executive officer, said in a statement.
The bank's problems stem from its admission in 2016 that it had opened millions of sham accounts that customers didn't ask for. Some customers were wrongly charged with overdraft and other fees that harmed their credit scores. The bank faced an immediate backlash on Capitol Hill, forcing longtime chief executive John Stumpf to resign and some senior executives to give up millions of dollars in bonuses.
Despite Wells Fargo's repeated efforts to satisfy its critics, the bank's problems have grown over the last year. It drew more backlash after it revealed recently that the creation of fake accounts had gone on far longer than the bank had first acknowledged. Now Wells Fargo says that employees created up to 3.5 million fake accounts, rather than the 2 million it reported earlier. The bank also said that for six years about 570,000 customers were charged for auto insurance they didn't need, driving some to default on their loans and see their cars repossessed.
"While there is still more work to do, we have made significant improvements over the past year to our governance and risk management that address concerns highlighted in this consent order," said Sloan, the bank's chief executive.