The Federal Reserve Board has taken the unusual and unprecedented step of telling Wells Fargo that it can not grow its business until it fixes compliance problems that led to a phony accounts scandal and forcing individuals to take out unnecessary auto insurance.
Wells Fargo announced that it would replace four members of its board of directors. It currently has $1.95 trillion of assets.
The move came on Federal Reserve Chair Janet Yellen’s last day in office. She is being replaced by incoming chairman Jerome Powell.
“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,” Yellen said in a statement.
Wells Fargo said it would submit a plan within 60 days to show its improved risk management and oversight practices.
The bank was accused of motivating employees with financial bonuses for signing up customers to new accounts. In order to achieve the bonuses, employees were signing up individuals for accounts without telling them. Wells was fined more than $100 million by the Consumer Financial Protection Bureau and former CEO John Stumpf retired.
The bank was also accused of unnecessarily placing auto insurance coverage on individuals’ accounts and forcing them to pay for it. It also payed a $108 million fine for adding hidden fees on mortgage refinance applications of veterans.
One professor said that if the bank were smaller, the Fed may have forced it to shut down.
