Wells Fargo will pay a $1 billion fine to settle claims that it had taken advantage of mortgage and auto loan customers. Federal regulators also said the bank did not have adequate compliance or risk management programs.

ARI SHAPIRO, HOST:

Wells Fargo Bank has agreed to pay up to a billion dollars to settle allegations that it overcharged people for auto and mortgage loans, among other things. The fines were imposed by the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, marking the first major action against a bank by the Trump administration. This is just the latest blow for the bank. We’re joined by NPR’s Jim Zarroli for more. Hi, Jim.

JIM ZARROLI, BYLINE: Hi, Ari.

SHAPIRO: Remind us what the bank is accused of.

ZARROLI: This has to do with allegations about the way Wells Fargo handled some of its customers’ mortgages and auto loans. It’s accused of attaching improper charges to some of them. And this comes on top of the really big scandal you may remember that happened in 2016 when the bank was found to have opened some 3.5 million accounts for its customers without their knowledge. And federal regulators say these things were happening, and senior management really didn’t do enough to stop them.

SHAPIRO: We should say that Wells Fargo is an NPR funder. What do the banks say about these charges?

ZARROLI: It has acknowledged that it did a lot of things wrong. It says it’s working to change them, to reform. The senior management of the bank was basically forced out after the scandals happened. There’s a new CEO, and he said – there was a statement today in which he said, we have more work to do, but we have the same priorities as our regulators and we are committed to working with them.

SHAPIRO: A billion dollars sounds like a really big number. How much will it actually hurt a bank the size of Wells Fargo?

ZARROLI: Well, it kind of depends on how you look at it. I mean, this is a bank with $2 trillion in assets. So, you know, compared to that, a billion isn’t very much. The bank earned nearly $6 billion in profits during the first three months of this year. You know. So how much does this hurt the bank? You know, I put that question to Lawrence White, who is a professor at New York University and an expert on banking, and here’s what he had to say.

LAWRENCE WHITE: It’s not going to cripple the bank, but nobody likes to write a check that has 10 digits on it.

ZARROLI: And then we have to keep in mind that Wells Fargo also faces lawsuits from its customers who were hurt by some of the things the bank has done and allowed to have happened. And it’s set, Wells Fargo has set aside another $4 billion for future liability. So this is not nothing.

SHAPIRO: But even if it does have to pay $4 billion in the future, as you say, that’s less than the bank makes in a single quarter. So is this really enough to force big changes?

ZARROLI: Well, that’s right. But keep in mind the fine isn’t the only thing that regulators are doing. The Federal Reserve has essentially told Wells Fargo earlier this year that they cannot grow any more until they’ve persuaded the government that they have reformed. There’s going to be a pretty heavy oversight role by regulators. Bloomberg had a really good article today that pointed out that the settlement that Wells Fargo has signed allows regulators to remove executives and board members if they see fit.

SHAPIRO: What kind of a message does a fine like this send to other big banks?

ZARROLI: Well, this was a really big and embarrassing scandal for Wells Fargo, and it really did suggest that, you know, at the very least, senior managers were sort of asleep at the switch. And Lawrence White of NYU says you really have to look at this in context.

WHITE: I think fundamentally it’s about very poor management on the part of Wells, and it really raises the question, are these big banks too big to manage effectively?

ZARROLI: And, White says, just look at some of the other big scandals that have happened at major banks, like the London Whale case. That was when a single trader at JPMorgan Chase’s London office caused $6 billion in derivatives losses. So you have these big, huge problems developing in parts of the bank, and senior managers can be unaware of them because they preside over these really huge operations, and that’s a problem.

SHAPIRO: NPR’s Jim Zarroli. Thank you.

ZARROLI: You’re welcome.

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