Consumer Financial Protection Bureau Director Richard Cordray allegedly misled Congress about the agency's investigation into Wells Fargo's illegal sales practices and may have rushed a settlement with the bank, according to a new report by the Republican staff of the House Financial Services Committee.
The 32-page report, released Tuesday, says that GOP staff could not corroborate Cordray's claim in congressional testimony that the CFPB was actively investigating Wells' illegal sales practices prior to May 4, 2015, when the Los Angeles city attorney's office filed its complaint against the bank. The report also said that CFPB could have demanded as much as $10 billion from Wells as a result of its phony-accounts scandal, but ultimately settled for $100 million because it wanted to close out the case.
The report alleges that the CFPB never conducted its own investigation but rather "relied primarily, if not exclusively, on the PricewaterhouseCoopers" report.
"Internal CFPB records obtained by the committee raise grave questions as to whether Director Cordray, other senior CFPB officials, and CFPB oversight attorneys engaged in actions that had the effect of obstructing the committee’s lawful oversight related to the Wells Fargo account scandal," the report stated.
That included withholding key information, said the report, which was prepared under the auspices of House Financial Services Committee Chairman Jeb Hensarling. Previous reports by the panel staff have threatened to hold Cordray in contempt for failing to turn over crucial documents.
“Although the committee requested records that include the recommendation memorandum just days after the CFPB settled with Wells Fargo, the committee did not obtain it until September 5, 2017," it said.
The report appears to be part of an effort by Republicans to prove Cordray lied to Congress in September 2016 and April 2017 when he testified that the CFPB was already tracking Wells’ fraudulent sales practices and had conducted an "independent and comprehensive" investigation.
Lying to Congress could be used as a basis for President Trump to fire Cordray "for cause," the legal standard in the Dodd-Frank Act. (A court case challenging that standard, which would allow the president to dismiss a CFPB director at will, is under appeal.)
The CFPB said it was reviewing the report.
Among the more explosive allegations is the suggestion that the CFPB settled for far less than it should. Though the House Financial Services Committee report does not definitively conclude this, it notes that the bureau was entitled under law to seek up to $10 billion. The GOP staff calculated the figure by charging a hypothetical $5,000 fine for each of the then 2 million estimated bogus checking and credit card accounts that were opened by Wells employees from 2011 to 2015 (that figure was later raised to 3.5 million).
Ultimately, the CFPB, along with the Office of the Comptroller of the Currency and the L.A. city attorney, charged $190 million in fines and restitution against Wells, including a $100 million fine from the consumer agency, its largest to date.
However, had the CFPB tried to assess a $10 billion penalty — or anything remotely close to that amount — Wells would have almost certainly balked, dragging on the enforcement proceedings potentially for years. Such a penalty would be virtually unheard of for regulators to assess, particularly in a case where consumers did not directly lose money, but incurred other potential costs from fraudulent records in their credit reporting.
The committee said CFPB documents, including a recommendation memorandum on how to proceed in the Wells matter, showed that the bureau may have rushed a settlement.
“The enforcement division claims in the recommendation memorandum that there are ‘benefits’ to ‘proceeding quickly’ to a settlement, but those benefits are not articulated and other factors in the recommendation memorandum seemed to weigh against a quick settlement,” the report says. “This staff report observes that the recommendation memorandum conspicuously lacked analysis to support the penalty that the CFPB ultimately imposed."
The consumer bureau sought to settle with Wells Fargo quickly while acknowledging that it would likely miss other violations, the GOP report said.
“The recommendation memorandum ultimately advised against continuing the CFPB’s investigation even though the enforcement division concluded that this approach risked failing to uncover further misconduct by Wells Fargo," the report said, while pointing to later revelations that Wells had sold unwanted auto insurance to customers without them knowing.
The Republican report also sought to contradict Cordray's congressional testimony that multiple whistleblowers had alerted the CFPB to Wells' illegal sales practices in mid-2013.
The report cited internal CFPB documents that showed a single whistleblower had contacted the agency, but that lone tip "appears not to have been taken seriously" by the CFPB's enforcement division, and was "subsequently not pursued."
The internal memo from March 2016 that opened the CFPB's investigation into Wells’ illegal sales practices did not credit "any whistleblower tips or cite any CFPB work as its basis to open an enforcement investigation," the report said.
In August, Wells disclosed that an additional 1.4 million potentially unauthorized accounts were opened by employees after it examined more than 165 retail banking accounts opened from January 2009 through September 2016.
Wells fired 5,300 employees between 2011 and 2016. Its CEO, John Stumpf, resigned in October and was replaced by Tim Sloan.
Most prudential regulators use a so-called matrix to assess civil money penalties. Some experts said that no regulator would impose penalties in the billions because it would potentially affect a bank's capital levels. Wells initially claimed that few consumers were harmed by the practices. In April, the bank agreed to settle a class-action lawsuit for $142 million that was brought by consumers who claimed they were indirectly damaged by the account openings.