Fed allows Wells to expand lending past cap limits

The Federal Reserve announced that it was temporarily lifting the restriction caps on Wells Fargo, imposed because of an enforcement action following a string of regulatory citations from federal regulators.

The move will allow Wells Fargo to provide additional support beyond its restrictions for the PPP lending and for the recently announced Main Street Lending Program.

“The board will require benefits from the PPP and the Main Street Lending Program to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses,” the Federal Reserve said in its announcement. “The change will be in place as long as the facilities are active.

“The board’s growth restriction was implemented because of widespread compliance and operational breakdowns that resulted in harm to consumers and because the company’s activities were ineffectively overseen by its board of directors. The growth restriction does not prevent the firm from engaging in any type of activity, including the PPP, the Main Street Lending Program, or accepting customer deposits. Rather, it provides an overall cap on the size of the firm’s balance sheet. The change today provides additional support to small businesses hurt by the economic effects of the coronavirus by allowing activities from the PPP and the Main Street Lending Program to not count against the cap.”

Later in the day, Wells Fargo announced it would expand its participation in PPP beyond the $10 billion limit it announced it had reached the weekend after the program’s launch.

“Wells Fargo appreciates the targeted action of the Federal Reserve to support the needs of small businesses through PPP and looks forward to expanding relief to many more small businesses and nonprofits,” Wells Fargo CEO Charlie Scharf said in a release. “In the first two days alone, we received more than 170,000 indications of interest from our customers, and know there is much more need. While the asset cap does not specifically restrict Wells Fargo’s participation in this program, this action by the Federal Reserve will enable Wells Fargo to provide additional relief for our customers and communities.”

The news of the cap lifting by the Fed was met with skepticism by Wells Fargo critics. House Financial Services Chairwoman Maxine Waters (D-Calif.) noted the “unprecedented” situation small businesses are in, and their need for reliance on banks.

“The Fed must carefully monitor Wells Fargo and make sure that vulnerable small-business owners are protected,” Waters said in a statement. “It is also important that this asset cap modification is temporary, and that Wells Fargo still be required to fix the widespread problems that have plagued the bank and its customers.

“Wells Fargo remains a deeply troubled institution which still does not have sufficient risk management or compliance systems in place within the company to prevent consumer abuses. …   Wells Fargo still has a lot of work to do to correct its chronic problems. Let’s not forget that Wells Fargo opened 3.5 million fraudulent accounts in their customers’ names, charged customers for auto insurance policies they did not need, and ripped off veterans by overcharging them for refinance loans, just to name a few of their consumer abuses in recent years.” 

Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) also was wary of the move.

“The Federal Reserve’s decision to lift Wells Fargo’s asset cap is troubling. Wells Fargo has demonstrated it is too large to manage, and time and time again that it can’t be trusted to do right by their customers and employees,” Brown said in a statement. “If the Fed wants Wells to focus on community lending, and if Wells is truly committed to its communities and customers, the bank could instead have given up other risky lines of business in order to serve small businesses.”