Senator Elizabeth Warren has petitioned the Federal Reserve to require Wells Fargo to separate its banking and financial services operations.
According to The New York Times and CNBC, Warren, D-Massachusetts, stated in a letter to Federal Reserve Chair Jerome Powell on Monday that the Fed could do this by revoking its financial holding company license.
“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.”
Jeremy Kress, a University of Michigan management professor, had advocated removing Wells Fargo’s bank holding company license two years ago. In an academic article, Kress argued that because the Fed requires institutions to have a high regulatory rating in order to receive such a license, any bank with a rating that falls far below that should lose the license.
Warren cited a 2018 assessment that revealed Wells Fargo’s regulatory rating had fallen below the level where the bank could be called “well managed” in mid-2017, according to Warren. She stated it was “inconceivable” that the rating could have recently improved due to persistent issues.
More recently, the financial behemoth has had issues. Wells Fargo Bank was fined $250 million by US authorities this week for failing to follow through on a 2018 commitment to reimburse customers for excessive and inappropriate fees. The Office of the Comptroller of the Currency also required Wells Fargo to perform corrective activities in addition to the fine.
According to the New York Times, the same office discovered that Wells Fargo’s mortgage account administration was so fouled up that it may have wrongly foreclosed on some borrowers’ homes, and the bank has been forced 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 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.
In the letter, Warren also mentioned the company’s bogus account incident, calling it a “irredeemable serial offender” with a “inability to meet regulatory obligations and treat its users honestly and fairly.”
Last Monday, Wells Fargo announced that the consent decree issued by the Consumer Financial Protection Bureau in 2016 in connection with the bogus account scandal had expired.
On Tuesday, the banking behemoth did not directly respond to Warren, instead issuing a statement on its attempts to reform its policies in order to comply with regulators’ requests.
Wells Fargo said it broke operations into different organizations with separate oversight, hired in new leaders, increased surveillance of sales tactics, and hastened the process of repayment to consumers it had wronged, among other things, according to the statement.