In June 2015, the Office of the Comptroller of the Currency issued several consent orders dealing with misconduct by large banks. Two were new, against Bank of American and Wells Fargo for newly discovered misconduct. The remainder dealt with the failure by large banks, including Wells Fargo to abide by the terms of existing Consent Orders.
Bank of America
The Office of the Comptroller of the Currency (OCC) has the power to examine national banks to check that they are not engaging in “unsafe” or “unsound” practices and any other violations of the law. In its examination of Bank of America, OCC identified several problems with Bank of America’s debt collection practices. In particular, Bank of America failed to comply with the Servicemembers Civil Relief Act (SCRA). The consent order states that Bank of America’s internal processes, meant to ensure compliance, were inadequate. Further, the consent order states that Bank of America engaged in robo-signing.
The OCC’s consent order notes that Bank of America created affidavits claiming personal knowledge when the affiants had none, falsely claimed that the affiant reviewed records when they had not and failed to properly follow notary procedures. The consent order also indicates that Bank of America failed to stop misconduct by third party collectors and collection lawyers.
The consent order requires Bank of America to take various steps to prevent these violations of the law – the creation of compliance committees and polices. Bank of America also paid a penalty of $30 million.
Wells Fargo
The OCC also examined Wells Fargo and found a different set of violations. Wells Fargo sold identity theft and debt cancellation “add-on” products to its customers, but some customers simply did not receive the “Identity Theft Protection” services they paid for because the third-party paid by Wells Fargo to provide them did not do so.
Debt cancellation services are, in essence, a form of insurance which will make payments on customer’s debts under certain circumstances. The customer pays a percentage of their current balance for the product (a current Wells Fargo product is 0.39%). In exchange the debt is paid in full if the customer dies, or fixed monthly payments if the customer is hospitalized or involuntarily unemployed (under the current product the amount is 4% of the debt or the minimum payment whichever is greater). It was the payment of the fixed monthly amount that caused problems for Wells Fargo. It’s third-party vendor made payments at a fixed date every month, regardless of the when the customer’s payment was due, resulting in late fees for some customers. In addition, some people who cancelled the product within its 30 day cancellation period did not receive a refund of their first payment.
The CFPB has recently begun to challenge the behavior of add-on product providers directly, as described in these two complaints.
The OCC’s consent order dealing with these violations imposes similar requirements to those against Bank of America: a compliance committee, a comprehensive plan and reporting back to the OCC. In addition, Wells Fargo must reimburse customers who lost money because of these violations and pay a $4 million penalty.
Wells Fargo and Other Banks Fail To Comply With Existing Consent Orders
Consent Orders requiring erring banks to mend their ways and compensate consumers who they have injured are now a routine part of regulatory enforcement in the world of consumer finance. Back in 2011, a large batch of consent orders aimed to remedy unfair and deceptive mortgage foreclosure practices. Those consent orders set in motion the Independent Foreclosure Review (IFR). IFR has attracted some criticism since its creation.
OCC has released 3 banks from the IFR consent orders because they have, in OCC’s view, complied with the terms of those consent order. However, at the same time, OCC moved to punish 6 other companies for failing to abide by the terms of their consent orders. The OCC’s sanctions take the form not of additional financial penalties but restrictions on the business of the offending companies.
The restrictions are all about the rights to service residential mortgages. Banks and mortgage services trade the servicing rights to residential mortgages. OCC’s amended consumer orders limits the ability of the companies to buy the servicing rights to more mortgages, enter into new servicing contracts, engage in any new off-shoring of servicing activity and change the officials within the company in charge of servicing. As outlined in a useful table from OCC, the restrictions are strongest for two of the biggest offenders: Wells Fargo and HSBC. Wells and HSBC are absolutely prohibited from getting new servicing rights and new “offshoring” activity until they have finished the IFR process created by the original consent order. The other erring companies can still do those things unless OCC objects.
OCC says (in point 9 of this FAQ) that the purpose these restrictions is to “focus the banks resources on the corrective requirements” they have not yet completed. Whether they will be more effective than the original consent orders remains to be seen. At the least, banks which have not fully complied with IFR will find it more difficult to obtain more servicing rights, which means that their continuing failures may ultimately impact fewer consumers.
As the OCC consent order with Wells Fargo shows, the failings involved here are not minor. Wells Fargo’s failings include failure to establish “processes to ensure that all factual assertions made in pleadings, declarations, affidavits, or other sworn statements filed by or on behalf of the Bank are accurate, complete, timely and reliable; and that affidavits and declarations are based on personal knowledge or a review of the Bank’s books and records when the affidavit or declaration so states.”
In other words, in the four years since the start of IFR, Wells Fargo may still have been filing robo-signed documents in mortgage foreclosure cases, because it’s internal processes allow that to happen. We don’t know because of the next time: the bank failed “to ensure that a clear and auditable trail exists for all factual information contained in each affidavit…” Other parts of the Consent Order suggest that Wells Fargo may still be charging incorrect fees in foreclosure cases and has failed to engage “reasonable and good faith efforts… in Loss Mitigation and foreclosure prevention.”
OCC maintains the right to bring new enforcement actions and fine Wells Fargo and the other banks for failure to comply. These banks now have not a second, but a fourth chance to comply with the law.