After the Wells Fargo sales-practices scandal erupted last September, I wrote an article that began:
Having spent five years supervising large financial institutions on Wall Street, I am rarely surprised by the latest news of banks behaving badly. But even the most hardened cynics, such as myself, were taken aback by the recent announcement that Wells Fargo was being fined US$185 million for fraudulent sales practices that included opening over two million fake deposit and credit card accounts without informing its customers.
I guess I spoke too soon, because much like our President, Wells Fargo has proven inventive in finding new ways to shock our sensibilities. In case you missed it, here are some of Wells Fargo’s top hits over the past year:
- In November, Wells Fargo “agreed to pay $50 million to settle a class-action lawsuit that accused the bank of overcharging hundreds of thousands of homeowners for appraisals ordered after the homeowners defaulted on their mortgage loans.”
- In December, regulators rejected the firm’s revised living will plan, making them the only firm to flunk the retest out of the five banks who were required to resubmit their plans after failing the tests earlier in the year.[1]
- In January, Wells Fargo was sued for “illegally denying student loans to young immigrants who are protected from deportation and allowed to work and study in the U.S. under a program created by former President Obama.”
- In March, the OCC issued a “needs to improve” rating to Wells Fargo under the Community Reinvestment Act.
- In May, the City of Philadelphia sued Wells Fargo for pushing “minorities into riskier loans with higher rates, even in cases where the borrowers had credit profiles that would have qualified them for lower-rate loans.”
- In June, the New York Times reported on several new lawsuits alleging, “officials in the company’s mortgage business were putting through unauthorized changes to home loans held by customers in bankruptcy.”
- In July, Wells Fargo admitted that roughly 570,000 customers were signed up for car insurance that they did not need. “Many couldn’t afford both the car payment and the extra insurance, which made them fall behind in payments. In about 20,000 cases, cars were repossessed.”
- Also in July, it was revealed that Wells Fargo “accidentally released confidential information on tens of thousands of the bank’s wealth-advisory clients” in responding to a subpoena.
The following all occurred last month
- It was reported that the Federal Reserve Bank of San Francisco was investigating Wells Fargo for “not refunding insurance money owed to people who paid off their car loans early.”
- Wells Fargo was sued for allegedly overcharging small businesses for processing credit card transactions. One former Wells Fargo employee told CNN: “We used to be told to go out and club the baby seals: mom-pop-shops that had no legal support.”
- Wells Fargo reported they were under investigation by the Consumer Financial Protection Bureau(CFPB) for improperly closing customers’ real accounts, leaving them without access to their needed funds.
- Wells Fargo reported they were under investigation by the CFPB for allegedly “bilking home loan borrowers by charging them extra fees when their applications were delayed — even when it was the bank’s fault.” The firm is also being sued for these actions.
- Wells Fargo came full circle on August 31st, when they revised their estimate for the number of customers who had potential unauthorized customer accounts opened from 2.1 million to 3.5 million.
Looking over this list, I am reminded of the Seinfeld series finale, when upon sentencing Jerry, Elaine, George, and Kramer for criminal indifference, Judge Arthur Vandelay remarks: “your callous indifference and utter disregard for everything that is good and decent has rocked the very foundation upon which our society is built!”
Call it too big to manage, too big to jail, or whatever else you want; the fact is, Wells Fargo’s culture is rotten to the core. The bank’s management treats their customers like faceless piggy banks, just waiting to be cracked open with the hammer they call employees.
What do you do with a company so morally corrupt that even Jim Cramer is calling for the ouster of every board member and every executive? For starters, Federal Reserve Chair Janet Yellen should accede to Senator Elizabeth Warren’s demand and remove the 12 Wells Fargo directors who served between May 2011 and July 2015. Some may view this as unprecedented government intrusion into the private sector, but given the scope and scale of Wells Fargo’s misconduct, one could credibly argue that the bank poses a risk to public health, and that such intervention is justified. Regulators should then make clear to any new board members that a thorough senior executive house cleaning is in order – that includes current CEO Tim Sloan.
But is firing the board and senior executive team enough to cure what ails Wells Fargo? After all, most of the fraudulent activity was perpetrated by low-level employees – albeit under tremendous pressure from their superiors – suggesting the bank’s problems run deeper than a handful of greedy executives.
Maybe there is no cure, and the only solution is for the government to unwind the bank in an orderly fashion. However, the legal and regulatory tools available to facilitate a bank resolution where designed to be used in circumstances where the bank posed a threat to financial stability. Despite Wells Fargo’s long rap sheet, they likely do not pose such a threat.
When I wrote my original article on the Wells Fargo scandal last September, I tried to find a silver lining in the fact that banking regulators were set to finalize a proposed rule that would restrict bank executive compensation and require firms to claw back any previously awarded compensation from executives who were later found to have engaged in misconduct. But regulators failed to finalize the rule before President Trump took office, and the final nail was delivered this past July when the SEC gleefully threw in the towel. Call me naïve.
I would like to think that some good will come out of this. Perhaps Wells Fargo’s actions will make it more difficult politically for Republicans to dismantle the CFPB, but I have yet to hear of a single Republican who’s changed their mind on the issue. And maybe a few board members and executives will be dismissed and forced to give back a portion of their multimillion dollar bonuses. But that won’t be justice.
Justice is Wells Fargo being dismantled or significantly reduced in size. Justice is senior executives going to jail. Justice is the board of directors being dismissed. Justice is making it clear that it is unacceptable when the institutions entrusted to safeguard our money choose to steal it instead. Don’t hold your breath.
[1] They passed their third attempt at the living will test this past April.
My impression is that ‘Wells Fargo’ comprises both a bank and a financial advisory organization. It seems to me that both of these organizations are subsumed within the single larger entity – but that most if not all of the concerns you’ve enumerated relate to the ‘bank’ side of the house. If that is correct, shouldn’t that distinction be made clear?
The bank represents 90% of consolidated assets thus I did not feel the need to make a distinction.
I worked at Wells Fargo and predecessor banks for over forty years. The actions of certain employees and the failure of certain top managers to properly supervise cannot be condoned. However, it must be recognized that these actions were taken by a minority of employees and certainly did not represent the attitude of people where I worked. Our local president emphasized that our job was to do right by the customer and to help them succeed financially. Wells Fargo has numerous caring and dedicated employees who do their jobs conscientiously every day.
I appreciate your perspective Marlin and there is no doubt that many fine people work at Wells Fargo, some of whom I know personally. But the fact remains that somewhere between 5,000 and 10,000 employees were fired for opening unauthorized customer accounts. Although this may be a small fraction of Well Fargo’s total workforce, it is still more than just a few bad apples.
They are ruthless. They recruited me for two years to the WFA side. They gave me big money to join them. Then I requested permission to help an aging client settle an IRS OVDP claim. I told everyone, involved everyone, got emails to back it up, got permission, negotiated rates with the bank on currency transactions and then when they realized they hadn’t run through compliance, they fired me and claimed I was a rogue broker. They even went so far as to dummy up a client claim against me after I left the firm. I went to Finra arbitration and lost and now I am Chapter 13. Ruined financially and professionally and emotionally.
If congress has its way in the next couple weeks, this will get worse as Congress removes the constraints of decency in the banking system; they plan to repeal a lot the consumer protections instituted by the Dodd-Frank Act
Why has the CEO, Board of Directors, and other senior officials not been forced to resign or been prosecuted?
Good question. The CEO did resign when the phony accounts scandal first broke but he was replaced by a twenty year company veteran. Several directors did step down to. But overall, there’s been little punishment for those supposedly in charge.
Unfortunately, the punishments don’t match the crimes. As long as that is the case there isn’t enough deterrent other than their own desire to be decent. These are some of the things that came out. God knows what else has been going on.