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Wells Fargo (WFC) to Pay $37.3M to Settle Forex Lawsuit

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Even after facing a penalty and an enforcement action entailing business restrictions earlier this month, Wells Fargo & Company’s WFC legal hassles are far from over. This is because the Department of Justice slapped the firm with a $37-million fine to settle U.S. government claims of deceitfully overcharging commercial clients on foreign exchange (FX) services.

Specifically, the Department of Justice asserted that, from 2010-2017, Wells Fargo’s FX sales specialists duped 771 customers (several were small- and medium-sized businesses and federally-insured financial institutions) by systematically charging them higher mark-ups on FX transactions than the representative cost, and obscuring those overcharges via various distortions and underhanded practices.

Some FX sales employees were financially incentivized (more than $1 million a year as bonus), while the bank failed to take remedial actions to ensure fair pricing representations and training procedures.

According to the complaint, “As a result of the improper incentives and lack of oversight, a culture developed in which Wells Fargo FX sales specialists were comfortable repeatedly defrauding the bank’s customers. FX sales specialists openly discussed and even celebrated transactions resulting in larger FX spreads than agreed to with customers and transactions generating large FX revenue.”

As part of the approved settlement, Wells Fargo will pay a total of $72.6 million, with $35.3 million having been paid to the 771 customers collectively as compensation and $37.3 million as civil penalties to be paid to the United States under Financial Institutions Reform Recovery and Enforcement Act and as asset forfeit.

Wells Fargo also admitted to certain misdeeds claimed in the government’s complaint, including the FX sales specialists overcharging customers by using larger sales margins or spreads than representative, and that, in certain instances, when customers communicated with the bank to investigate about higher-than-agreed-upon pricing, false explanations for inflated prices were conveyed to them by those FX sales specialists.

Since legal hassles have been snowballing on the company, it has undertaken numerous initiatives and achieved regulatory milestones. Specifically, the company has bifurcated three business groups into five and created four Enterprise Functions to propel greater oversight and transparency. It also launched an enterprise-wide risk and control self-assessment program to evaluate the operational risks and controls as well as design appropriate mitigating controls.

The company’s 2016 consent order, which was issued by the Consumer Financial Protection Bureau in relation to the bank’s retail sales practices, was terminated earlier this month.

Moreover, this January, the Office of the Comptroller of the Currency (OCC) terminated a 2015 consent order related to the Wall Street giant’s Bank Secrecy Act/Anti-Money Laundering compliance program. In May 2020, the OCC upgraded the company’s Community Reinvestment Act rating to outstanding.

Shares of the company have gained 23.7% over the past six months compared with 8.6% growth recorded by the industry.

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Wells Fargo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Several other banks continue to encounter legal hassles and are charged with huge sums of money for business malpractices.

Earlier this month, Mitsubishi UFJ Financial Group’s MUFG U.S. banking unit, MUFG Union Bank NA, has been slapped with a cease-and-desist order by the Office of the OCC over its unsound technological practices. The regulator detected that the bank engaged in "unsafe or unsound practices" linked with its technology and operational risk management. According to the order, the bank was also in non-conformity with certain security guidelines. Nonetheless, Mitsubishi UFG is in progress with the "corrective action" and has "committed resources to remediate the deficiencies".

Credit Acceptance Corporation CACC had also announced the settlement of the lawsuit with the Massachusetts Attorney General and agreed to pay $27.2 million. In August 2020, AG Maura Healey filed a lawsuit in the Suffolk County Superior Court, claiming that Credit Acceptance has violated the state consumer protection, and debt collection laws and regulations.

Charles Schwab SCHW has also been slapped with a class-action lawsuit over violations of its fiduciary duty by placing its own interest before the protection of its clients through the bank’s robo-adviser Schwab Intelligent Portfolios’ (SIP) cash sweep program. The case, filed in the U.S. District Court in Northern California, also accused the company of breach of contract and the violation of state laws.


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