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.
- 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.