The Federal Reserve has cracked down on Wells Fargo after what it called “widespread consumer abuses” committed by the bank over a number of years. As a result, the bank’s growth is being stunted and their assets are not allowed to surpass its end-of-2017 levels, the government said in a stinging rebuke issued Friday.
“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,” Fed Chair Janet Yellen said in a statement.
Fed slaps Wells Fargo with sanctions for ‘persistent misconduct’
“The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers,” Yellen said.
Among the things the embattled bank must do to satiate the Fed is to get rid of four of its directors and cap its balance sheet at just under $2 trillion. CEO Tim Sloan said profits are expected to fall by $300 million to $400 million, according to MarketWatch.
The Fed wants to see “sufficient improvements” before lifting the sanctions, which caused downgrades on Wall Street on Monday.
Analysts expressed surprise at the government’s disciplining measures. “We were surprised by the C&D [cease and desist] considering the amount of money, time and effort the company has already put into remedying the sales practice issues that were disclosed in late 2016,” analyst Gerard Cassidy wrote Monday, according to CNBC.com. “Investors will have difficulty determining when the C&D will be lifted, resulting in an ongoing ‘cloud’ over the stock price and earnings.”
JP Morgan’s Vivek Juneja wrote to his clients Monday that Wells Fargo brought the sanctions on itself. “The harsh Fed consent order is rare and a strong sign of regulators’ frustration about the very wide swath of areas where Wells has had issues (e.g., consumer deposits, consumer lending, small business banking, merchant acquiring),” CNBC.com reports.
Banks have been in the news lately for all the wrong reasons where consumers are concerned. Last month, Wells Fargo enraged customers by accidentally wiping out some of their accounts. That same month, Bank of America drew criticism for switching the accounts of low-balance customers.
Money expert Clark Howard says if you want the best bang for your buck, then you should leave the banks and go to credit unions. Although the “big banks” hold about 40% of all U.S. commercial bank assets, they come with the problems mentioned above.
Many smaller institutions, such as online banks and credit unions, offer far better deals when it comes to checking accounts. While many people still prefer traditional brick and mortar banks over the digital variety, online banks are on the rise.
Tired of the ‘big banks’? Here are two affordable alternatives for your money
Here are two banking alternatives that you should definitely take a look:
- Credit unions: Many credit unions are fee-free and a part of a network. Find out which credit unions you’re eligible to join by visiting CUNA.org.
- Online banks: If you’re comfortable with digital transactions, online banks offer the same amenities you would find at a traditional bank, only lower costs and fewer fees.