Fed Hits Wells Fargo With Penalty For 'Widespread Consumer Abuses'
STEVE INSKEEP, HOST:
The departing chair of the Federal Reserve had a busy last day. Janet Yellen was about to turn over her desk on Friday when her agency hit Wells Fargo with some of the toughest penalties the Fed has ever imposed on a bank. Wells Fargo faces continuing accusations of abuse ever since customers were given checking accounts and credit cards that they never asked for. We should note that Wells Fargo is a sponsor of some NPR programming. Let's dive in with NPR's Chris Arnold, who's been covering this story. Hey there, Chris.
CHRIS ARNOLD, BYLINE: Hey, Steve.
INSKEEP: So what exactly did the Fed do to Wells?
ARNOLD: Well, what it did was pretty remarkable, I think. Wells Fargo is, of course, one of the biggest banks in the country, and the Fed has said, you cannot grow any larger as a bank. We are capping your growth, clipping your wings here until you put the right reforms in place, reforms that we think are strong enough to make sure that this kind of thing never happens again.
INSKEEP: Which seems understandable because part of the way that Wells seemed to be growing was by bogus - bogus deals.
ARNOLD: Right, right, like sales incentives that were - everybody admits were kind of ridiculous and it was sort of this artificial growth based on, you know, fraud at the branch level, basically. So the Fed's flexing its muscles here in a new way and bringing the hammer down, basically, on Wells. As part of this, too, the bank has agreed to remove four board members.
INSKEEP: Wow. And so how would Wells Fargo then prove that they've cleaned up their act and that they're in a position to grow again?
ARNOLD: Well, that remains unclear exactly what they're going to do. But they are going to send a reform plan to the Fed within two months. They're also going to submit to an independent third-party review, so there's going to be lots of paperwork and lots of details to follow, I'm sure.
INSKEEP: You do wonder if Janet Yellen did this on her final day because of questions about whether the new management would do the same thing. Doesn't the new Fed chair, Jerome Powell, have somewhat closer ties to the financial industry?
ARNOLD: Yeah. He comes out of the private equity world but - and it is true. Janet Yellen did care about this issue. We have some tape of her here. This is her speaking late last year at a press conference.
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JANET YELLEN: I consider the behavior of Wells Fargo towards its customers to have been egregious and unacceptable. We are committed to taking the actions we regard as necessary and appropriate to make sure that the right set of the controls are in place in that organization.
ARNOLD: But it's also true, Steve, that this is not just Yellen's issue. And this is important - both Janet Yellen and Jerome Powell both voted to impose these penalties. So other Fed officials all the way to the top wanted to take action. I talked to Mike Calhoun with the Center for Responsible Lending. He's also on this unpaid advisory council to Wells Fargo or to the Wells Fargo board. He says this action by the Fed sends a message across the country to the entire industry.
MICHAEL CALHOUN: The Fed is making it clear in this order the boards who are legally responsible for how companies operate cannot simply be passive.
ARNOLD: He's saying they need to be more aggressive, ferret out problems and make sure that these safeguards are in place.
INSKEEP: OK. Does Wells Fargo say they're going to be doing that?
ARNOLD: Well, Wells Fargo says they're cooperating. They don't have much choice, of course, but to say that - the bank also says, though, look, this original scandal was more than a year ago. We've been taking lots of steps to reform the bank. We're on the right path here.
INSKEEP: OK. Chris, thanks very much, always a pleasure talking with you.
ARNOLD: Thanks, Steve.
INSKEEP: That's NPR's Chris Arnold on the aftermath of a Federal Reserve order limiting the growth of Wells Fargo.
(SOUNDBITE OF DJ BABU'S "ROCKCHUUCH") Transcript provided by NPR, Copyright NPR.