The Consumer Financial Protection Bureau's $1 billion fine against Wells Fargo was a record, but it also set another precedent: Not a penny of that will go to Wells customers harmed by the practices at issue.

In fact, federal regulators did not specify how much Wells must refund its customers, including more than 27,000 who had their vehicles repossessed after the bank forced them into auto insurance policies.

Even though Wells will pay a sizable price, critics say the lack of a minimum restitution threshold is a departure for the CFPB. Under former Director Richard Cordray, the CFPB always set a minimum amount that firms had to pay affected customers, and monitored those reimbursements. But the agency under acting Director Mick Mulvaney appeared to jettison that approach in the order against Wells over abuses in its auto insurance and mortgage units.

Critics say that gives banks too much leeway to underpay consumers harmed by practices or not pay them at all.

Wells Fargo branch
While the CFPB order refers to a requirement that Wells Fargo develop a remediation plan, it establishes no minimum restitution amount, and mostly references an OCC order for how the bank develops that plan. Bloomberg News

"In the past, the CFPB was very clear when they went after big banks — they had to change their conduct, pay consumers back and pay a big penalty," said Prentiss Cox, an associate law professor and co-director of the law in practice program at the University of Minnesota. "This order does not tell consumers what their refund is, and leaves it to Wells to decide. They're communicating to other banks and the public that Wells is a responsible entity to make these decisions on their own, when the record shows exactly the opposite."

While the CFPB order refers to a requirement that Wells develop a remediation plan, it mostly references the Office of the Comptroller of the Currency's order for how the bank develops that plan. The OCC similarly did not state a minimum that will be refunded.

In addition to not setting a minimum remediation amount, another break from previous CFPB orders is that the agency's action against Wells appears to put the onus on consumers, requiring auto and home loan borrowers to show some form of "economic or cognizable harm" from the bank's practices in order to receive redress.

"It's unbelievable that the wrongdoer gets to decide how much to refund consumers," said Ed Mierzwinski, senior director of federal consumer program at U.S. PIRG. "This is really a bad deal for consumers."

The $1 billion fine against Wells was the agency's first enforcement action under Mulvaney and the largest civil money penalty in the agency's history. But that fine does not get paid to Wells customers directly; a portion of the fine will go into the CFPB's civil penalty fund used to reimburse consumers harmed by other institutions, while another portion associated with the OCC order goes into the Treasury.

In past settlements, the CFPB typically would design the refund program, collect the names of all the consumers affected (or hire someone to do so), determine who is eligible and for how much, and oversee how funds are distributed.

By comparison, the Wells order leaves the bank in charge.

Any requirement that the borrower prove his or her harm will likely result in smaller refunds to consumers, observers said.

"If a consumer has to do anything to show economic harm, then it becomes a claims process where the consumer has to affirmatively take some action, and how many consumers are going to do that?" said O. Max Gardner III, a longtime bankruptcy attorney at Max Gardner Law in Shelby, N.C.

In addition, the CFPB is taking a backseat role on the Wells settlement, leaving the heavy lifting of oversight of consumer restitution to the OCC.

"If this is the supposed showcase settlement showing Mulvaney can do enforcement, and they don't even have a coherent consumer redress program, that's not very promising," said Cox.

Mierzwinski said that the CFPB, as the supervisor for consumer protection law compliance, "should not have outsourced oversight and restitution to another agency."

The OCC order makes no mention of "cognizable harm" but requires that Wells develop a methodology for identifying harmed customers. Wells must engage in "a holistic assessment of the economic or other adverse impact on the affected consumers when developing individual remediation plans," the OCC's order states.

The issue of whether consumers faced "economic or cognizable harm" is a reference to a 2016 Supreme Court case, Spokeo, Inc. v. Robins, which reaffirmed that a plaintiff has to suffer an "injury in fact" to have standing to file a lawsuit.

"It's the language that defendants use when they are trying to argue that they don't owe money to people," Cox said. "The CFPB is signaling that in the future, consent orders will be bank-friendly and they assume the bank didn't mean to do anything wrong, and the bank comes up with the plan."

Allowing Wells to determine how it will compensate consumers also raises questions about how to calculate the economic harm and impact of having a car repossessed.

Between 2011 and 2016, at least 27,000 Wells customers with auto loans went into default and lost their vehicles because Wells automatically put them into auto insurance policies.

"A deeper problem here is, if Wells repossessed a car illegally, they can say that the bank paid a penalty because they were in violation of the law, but that they could have repossessed the car legally because the consumer was in default on the auto loan," Cox said. "Then the consumer would have to show that the force-placed insurance was the only reason for the default."

Since the settlement appears to reduce Wells' payouts to consumers, some lawyers have suggested that Wells saw an opportunity negotiate a better deal with Mulvaney and Comptroller of the Currency Joseph Otting than it would have under Cordray.

"In terms of the restitution plan, Wells might have gotten a better deal in the most recent consent order," said Richard Horn, principal at Garris Horn PLLC in Tucson.

Horn said that "because of the sheer number of accounts," Wells possibly "negotiated that there has to be some kind of harm as a way to limit restitution."

"You could argue that if someone got insurance that they weren't supposed to get or paid fees they weren't supposed to pay, that that is harm, in and of itself," he said.

"But Wells might have negotiated this language to err on the conservative side to make sure that consumers who did not incur any harm, do not end up under this settlement."

Wells will submit a remediation plan within 60 days, the bank said.

When asked to comment on the restitution portion of the CFPB order, Wells provided information on what it has reimbursed to customers.

“Wells Fargo is required to submit our remediation plans for CPI and rate-lock to the regulators — and both plans and the remediation program will be subject to review and oversight by them, as noted in the Consent Orders," said Kate Pulley, a Wells spokeswoman. "We are focused on moving forward with these plans and making things right with our customers.”

The CFPB declined to comment for this story.

The bank has been sending refunds to affected consumers since August 2017, though it is unclear if regulators have already approved those refunds.

So far, Wells has issued 235,000 checks totaling $11.7 million to auto loan customers that were put into force-placed auto insurance policies, and charged premiums and fees. Wells has estimated that it will provide roughly $145 million in cash remediation to those borrowers plus $37 million in account adjustments, according to its 2017 annual report.

The bank has not yet determined how many of the 110,000 borrowers, who were charged a total of $98 million in rate-lock fees, will be reimbursed.

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