Wells Fargo has agreed to a pay US$1 billion to settle a lawsuit filed by its two public sector pension plans who alleged the bank made misleading statements about its compliance with federal regulators after a fake account-opening scandal came to light in 2016.
The class action lawsuit was filed on behalf of members of the Employees’ Retirement System of Rhode Island, a hybrid pension plan that combines elements of defined benefit and defined contribution models, and the Mississippi Public Employees’ Retirement System, a defined benefit plan. A federal judge in New York on Tuesday granted preliminary approval of the settlement that was filed late Monday.
Wells Fargo has been sanctioned repeatedly by U.S. regulators for violations of consumer protection laws going back to 2016, when employees were found to have opened millions of accounts illegally in order to meet unrealistic sales goals. In addition to inflating sales figures that boosted the company’s stock, the actions by Wells’ employees caused damage to customers’ credit scores and cost some of them money in fees.
San Francisco-based Wells remains under a Federal Reserve order forbidding the bank from growing any larger until the Fed deems that its internal oversight problems are resolved. That order, originally enacted in 2018, was expected to last only a year or two.
The shareholder lawsuit alleged that between May 2018 and March 2020, the bank and its senior executives “repeatedly told investors that regulators were satisfied with the bank’s progress under the consent orders and that the asset cap would be timely removed.”
However, federal regulators didn’t lift the cap and more scandals surfaced.
In a statement about the settlement Tuesday, Wells Fargo said: “While we disagree with the allegations in this case, we are pleased to have resolved this matter.”
Last last year, Wells agreed to pay US$3.7 billion to settle charges that it harmed customers by charging illegal fees and interest on auto loans and mortgages, as well as incorrectly applying overdraft fees against savings and checking accounts.
Since the fake accounts scandal came to light in 2016, Wells has paid out billions in fines to state and federal regulators, reshuffled its board of directors and seen two chief executive officers and other top-level executives leave the company.
Shares in Wells Fargo ended Tuesday down about one per cent at US$38.39, approaching 2023 lows.