Warren Releases Troubling New Details on Wells Fargo Putting Borrowers Into Forbearance Without Their Consent During COVID-19 Pandemic
Urges the Federal Reserve to Consider Yet Another Instance of Gross Mismanagement at the Bank When Fed Officials Review the Status of the Bank's Growth Cap "This recent incident is another stark reminder that Wells Fargo has not yet implemented the types of structural reforms needed and that much additional progress is necessary before the Fed begins to consider permanently lifting the asset cap."
Washington, DC - United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking Committee, obtained and released new details and documents on Wells Fargo's dangerous practice of entering borrowers into forbearance without their consent amidst one of the worst economic downturns in history. The lawmaker released the new information in a letter to Federal Reserve (Fed) Chair Powell, noting that these practices again reveal a broken culture at Wells Fargo, and urging the Chairman to carefully evaluate this behavior by the bank before the Fed even begins to consider permanently lifting the bank's growth cap.
"We write to bring to your attention new and previously unreleased information regarding recent reports that Wells Fargo placed non-delinquent mortgage borrowers into forbearance without their consent, potentially putting them at risk of greater financial hardship during the coronavirus disease 2019 (COVID-19) pandemic... Early reports on this matter identified cases involving 'borrowers whose payments are monitored by bankruptcy courts.' But additional information that we have obtained from Wells Fargo reveals the extent to which Wells involuntarily placing borrowers into forbearance was a systemic practice at the institution, and a direct result of them not having the appropriate internal controls in place," wrote Senator Warren.
In July, reports emerged that Wells Fargo placed borrowers in at least 14 states into forbearance without their knowledge or consent, many of whom were not delinquent on their mortgages, and that some borrowers were extremely upset about this action.
Following these reports, Senator Warren sent a letter to Wells Fargo requesting additional information on this matter.
In its response, Wells Fargo admitted to entering certain customers into forbearance without their consent, identifying four categories of customers who were affected. The company was unable or unwilling to identify how many total consumers were affected, but did inform the Senators of a small subset, indicating that '(a)n internal review showed that at least 904 accounts held by customers in active bankruptcy proceedings were placed into forbearance without an affirmative request," and that the bank had received over 1,600 complaints about forbearance practices The categories of affected customers included
- "In early March, Wells Fargo began providing forbearances to customers in active bankruptcy proceedings if we identified a court filing indicating that the customer may have been suffering a COVID-19-related hardship."
- "From late March until early April, we automatically provided forbearances to customers who sent a secure email or contacted us by phone regarding a COVID-19-related hardship, as well as to customers who requested a fee waiver, even when the customers' communications did not specifically request a forbearance."
- "In late March, Wells Fargo also granted forbearances to eligible Home Preservation customers (including some customers in active bankruptcy proceedings) who at the time: (i) were in the loan modification application process; or (ii) had been denied a forbearance before the pandemic."; and
- "Finally, in late March and early April, when a customer requested forbearance on one of the customer's mortgage or home equity accounts, we extended the forbearance to that customer's mortgage-linked accounts."
The Senator's letter noted the importance of homeowners being able to access forbearance options available to them under the CARES Act and that, in some cases, such as when borrowers are already delinquent, putting them into a forbearance would be appropriate. However, the Senator also revealed the adverse financial impacts the broad practice had on Wells Fargo customers. The involuntary forbearances could have disrupted bankruptcy proceedings, prevented consumers from refinancing mortgages at record low rates, caused unexpected arrearages or fees, and -- according to internal Wells Fargo documents -- could have reduced consumers' credit scores calculated by companies such as Equifax and Transunion, affecting their access to credit.
"What Wells Fargo did in the early days of COVID-19 provides more evidence that Wells Fargo remains broken. We have included for your review documents that Wells Fargo provided to us regarding this matter, and ask that the Fed consider this latest example of Wells Fargo's inability to implement adequate internal controls and risk and compliance management practices as you monitor and review the status of the growth restriction you have placed on the bank," wrote the Senator.
In February 2018, the Federal Reserve placed Wells Fargo under a growth restriction as a result of its massive and ongoing corporate governance failures "until it sufficiently improves its governance and controls." And this latest incident is another stark reminder that Wells Fargo has not yet implemented the types of leadership and structural reforms needed to properly serve its customers.
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