Sept. 15 (UPI) — Senator Elizabeth Warren has asked the Federal Reserve to force Wells Fargo to split its banking activities from its financial services businesses.
Warren, D-Mass., said in a letter she wrote to Federal Reserve Chairman Jerome Powell on Monday, that the Fed could do this by revoking its financial holding company license, The New York Times and CNBC reported.
“The Fed has the power to put consumers first, and it must use it,” Warren wrote. “By invoking its full authority to protect consumers and the financial system and requiring Wells Fargo to separate its consumer-facing banking arm from the rest of its financial activities, the Fed can ensure that Wells Fargo faces appropriate consequences for its longstanding ungovernable behavior.”
Two years ago, Jeremy Kress, a University of Michigan business professor, had similarly proposed the idea of revoking Wells Fargo’s financial holding company license. Kress argued in an academic paper that since the Fed requires institutions to have a high regulatory rating to obtain such a license, any bank whose rating falls substantially lower should lose the license.
Warren pointed out a 2018 report that showed Wells Fargo’s regulatory rating, which is normally kept secret, had fallen below the level where the bank could be considered “well managed” in mid-2017. Because of ongoing problems, she said it was “inconceivable” that the rating could have recently improved.
The financial giant has also faced problems more recently. Last week, U.S. regulators fined Wells Fargo Bank $250 million for failing to uphold a 2018 settlement to pay back customers for excessive and inappropriate fees. Along with the fine, the Office of the Comptroller of the Currency required Wells Fargo to take corrective actions.
The Times noted that the same office found that Wells Fargo’s management of mortgage accounts had been so messed up that it may have improperly foreclosed on some borrower’s homes and it has been ordered to halt some foreclosures in progress.
“Continuing to allow this giant bank with a broken culture to conduct business in its current form poses substantial risks to consumers and the financial system,” Warren wrote in the letter to Powell on Monday.
Wells Fargo has paid over $4 billion in penalties since it came to light in 2016 that the company created millions of bank accounts in real people’s names without their knowledge, CNBC and the Times noted. The company has also admitted to forcing customers to buy unnecessary insurance and charging them unwarranted mortgage fees.
Warren also cited scandal over fake accounts in the letter, saying the company is an “irredeemable repeat offender” with “inability to meet regulatory requirements and treat its consumers honestly and fairly.”
Wells Fargo said last week that the Consumer Financial Protection Bureau consent order from 2016 tied to the fake account scandal has expired.
The financial giant did not respond directly to Warren on Tuesday, but put out a statement focused on its efforts to change its practices to meet regulators’ demands.
Among the efforts listed in the statement, Wells Fargo said it split businesses into new groups with separate oversight, brought in new leaders, improved monitoring of sales practices, and accelerated the pace of restitution to customers it had harmed.
“We are a different bank today than we were five years ago because we’ve made significant progress,” Well Fargo said in the statement.
