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US Federal Reserve imposes new penalties on Wells Fargo

Wells Fargo

Washington, Feb 3 (UITV/IANS)- The US Federal Reserve has frozen the expansion of banking giant Wells Fargo until it improves its management, after noting "pervasive and persistent misconduct".

"Until the firm makes sufficient improvements, it will be restricted from growing any larger than its total asset size as of the end of 2017," the Fed statement said noting widespread consumer abuses and other compliance breakdowns by the bank, media reports said.

The Fed's decision came two years after a scandal surfaced about fake accounts that Wells Fargo employees opened without the customer authorisation or knowledge to comply with commercial targets, Efe news reported.

Wells Fargo has admitted that this was a widespread practice in the bank before 2016 and decided to dismiss 5,300 of its employees.

The Fed on Friday imposed more penalties on the bank. Wells Fargo will have to replace three members of its board of directors by April and another one by the end of 2018, Xinhua news agency reported.

The new penalties were announced late Friday on Fed Chair Janet Yellen's last day at the central bank.

The bank has already paid $185 million in fines for the malpractice and another $142 million to settle a class action lawsuit.

In October 2016, the scandal led to the resignation of its then CEO, John Stumpf, who was replaced by Tim Sloan.

In the Fed statement, Yellen said: "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."

The Fed's penalty, however, will not require the bank to cease current activities, such as accepting customer deposits or making consumer loans.

Wells Fargo has admitted that employees opened more than 2 million fake accounts in order to meet sales quotas without customers' authorisation between 2011 to 2015.

The bank was also found charging hundreds of thousands of auto loan customers for auto insurance they did not need.