Wells Fargo & Co.'s troubles with its fake-account scandal reportedly have earned the bank a credit downgrade.
Ratings agency DBRS said Wednesday that it is taking down the Wells rating from AA to AA (low), CNBC reported. “That's essentially a step and a half below top-rated, but still well within the range of investment-grade,” CNBC explained.
The move is in reaction to the growing costs the third-largest U.S. bank by assets faces regarding the scandal, CNBC reported.
"The one-notch rating downgrade reflects operational and management missteps at the Company and resultant reputational damage stemming from ongoing issues surrounding the Company's sales practices, as well as practices impacting other consumer-related areas," DBRS said in a statement.
Faulty incentives and a decentralized management structure led the bank to create as many as 3.5 million accounts in customers’ names without their permission, and to charge others for auto insurance, mortgage features and “add-on” products they did not want, Reuters reported.
The problems first came to light more than three years ago, but only caught widespread attention when Wells Fargo reached a $190 million regulatory settlement over the phony accounts last year. Other issues only surfaced more recently, leading some lawmakers, analysts and investors to question whether the bank has its arms around the situation.
Meanwhile, a consumer watchdog agency could have levied $10 billion in penalties against Wells Fargo last year for opening unauthorized customer accounts, but settled for a fraction of that to resolve the matter quickly, according to regulatory documents released on Tuesday.
The documents, unveiled as part of a report written by congressional Republicans, look set to heighten a fierce partisan debate about the future of the U.S. Consumer Financial Protection Bureau (CFPB), Reuters reported.
Set up by Democrats in the aftermath of the 2007-2009 financial crisis to protect consumers against abuses by large institutions, the CFPB is loathed by Republicans who criticize it as a wayward agency that lacks proper oversight.
Last year, the CFPB and two other regulators reached a $185 million settlement with Wells Fargo after discovering the third-largest U.S. lender had opened as many as 2.1 million bank and card accounts in customers’ names without their permission. The number of potentially affected customers has since grown to 3.5 million as Wells has expanded its probe of sales abuses.
The CFPB’s portion of that settlement was $100 million, making it the largest fine in the agency’s short history.
But the regulator could have made a claim for over 100 times that amount, if it multiplied statutory penalties outlined in consumer law by the number of potential violations, according to a memo staff sent to CFPB Director Richard Cordray in July 2016, which Reuters saw on Tuesday.
(Newsmax wires services contributed to this report).
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