The Federal Reserve ordered Wells Fargo & Co. Friday to cap its growth and improve its corporate governance, punishment for what the regulator called “widespread consumer abuses and other compliance breakdowns” at the San Francisco-based bank.
Wells Fargo, apparently in response to the action, said it would replace four board members. Fed Chair Janet Yellen said Wells Fargo will not be allowed to grow any larger until it can do so without endangering customers.
“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,” said Yellen, whose term as head of the Fed ended Saturday.
The Fed ordered the bank to submit a plan for improving board oversight and risk management. Until the Fed determines that the bank’s practices have improved, the bank cannot increase its assets beyond $1.95 trillion, where they stood at the end of 2017.
In a statement, Wells Fargo CEO Timothy Sloan said the bank is “focused on addressing all of the Federal Reserve’s concerns.”
The Fed’s move is the latest and most serious regulatory action against the bank over the past year and a half.
Since then, the bank has also admitted to other questionable practices, including charging car-loan customers for insurance they did not need and charging improper fees to some mortgage borrowers.
In letters sent to Wells Fargo board members, Michael Gibson, the Fed’s director of supervision and regulation, said those problems show the bank’s board did not properly oversee the bank.
“The firm’s lack of effective oversight and control of compliance and operational risks contributed in material ways to the substantial harm suffered by (Wells Fargo) customers,” Gibson wrote.
The Fed also sent letters to former Wells Fargo Chairman and CEO John Stumpf and longtime board member and former Chairman Stephen Sanger, saying their performance was “an example of ineffective oversight that is not consistent with the Federal Reserve’s expectations.”
Sanger, a former CEO of General Mills, had been Wells Fargo’s lead independent director for years before taking over as chairman when Stumpf resigned shortly after the sham-accounts scandal came to light.
He and two other longtime board members, Cynthia H. Milligan and Susan G. Swenson, retired effective Jan. 1.
Wells Fargo said Friday that three additional board members — it did not say who — will retire in the coming months and a fourth will step down by the end of the year.