WFC Wells Fargo and Company

By Yuka Hayashi and Emily Glazer 

A consumer regulator calculated it could have pursued a $10 billion penalty against Wells Fargo & Co. over its sales practices scandal before settling on a much smaller fine, according to government documents released by House Republicans on Tuesday.

A July 2016 memo written by Consumer Financial Protection Bureau lawyers also said the bank had fired or disciplined around 10,000 employees related to its sales practices scandal, far higher than previously disclosed.

The internal CFPB memo was written two months before regulators took action against Wells Fargo. In it, CFPB enforcement lawyers alleged that the bank had made "more than 2 million violations" of the consumer financial protection law related to opening of unauthorized customer accounts. Those violations, they said, opened the door to a huge fine based on the lowest penalties included in the law.

The lawyers went on to recommend a $100 million penalty to"help resolve this case," stating that the smaller amount would "sufficiently deter similar violations" and correct the bank's behavior.

The document was prepared for CFPB Director Richard Cordray, recommending the bureau take action against the bank. In September 2016, Wells Fargo agreed to pay the $100 million fine to the CFPB -- a figure Mr. Cordray said was the largest civil penalty ever by the bureau -- as part of a $185 million settlement with federal and state regulators over practices that involved opening of millions of accounts without customers' knowledge.

"We have substantial evidence that the bank was generally aware of employees 'gaming' its incentive-compensation program by creating false customer accounts as early as 2006," the lawyers wrote. "While the amount of known consumer harm is only a few million dollars, the severity of the risks to consumers is demonstrated by the pervasiveness of violations."

About a year ago, Wells Fargo said it fired 5,300 employees over a five-year period for opening sham accounts using unauthorized or fictitious customer information. The bank hasn't publicly said what the updated figure is.

The committee's report didn't give a breakdown of how many of the 10,000 employees were fired versus being disciplined, or what the figure was based on.

A Wells Fargo spokeswoman declined to comment, saying the bank is reviewing the committee's release and adding it has taken "significant steps" to address its sales practices over the past year.

A CFPB spokesman didn't immediately comment.

In the months following its $185 million settlement over the fake accounts, the bank has fired several executives and managers directly related to the scandal, especially in problem areas including California and Arizona.

Wells Fargo said last month that potentially 3.5 million accounts were opened using fake or unauthorized customer information, an increase from the 2.1 million it initially estimated.

When asked about any additional personnel changes or overall firings in a recent call with media following the bank's announcement of fake accounts, Chief Executive Timothy Sloan said he didn't' have any "additional updates."

The CFPB's internal memo was released as part of a report prepared by the Republican staff of the House Financial Services Committee, which has been investigating the CFPB's handling of the Wells Fargo scandal. The committee is chaired by Rep. Jeb Hensarling (R., Texas), Congress's leading critic of the CFPB, an agency created under the Obama administration.

In the report, Republican staffers alleged that the scaling back of the fine indicated the CFPB rushed into a settlement, fearing that it might fall behind the Los Angeles City Attorney's Office and the Office of the Comptroller of Currency that were also investigating the case.

The OCC earlier this year blamed itself for failing to catch the problems earlier after conducting a review of its own handling of the case.

"The CFPB's premature suspension of its investigation meant that it potentially lost the opportunity to discover recently announced instances of consumer harm by Wells Fargo," Mr. Hensarling's staff wrote.

Write to Yuka Hayashi at yuka.hayashi@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

September 19, 2017 19:20 ET (23:20 GMT)

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