The Consumer Financial Services Protection Bureau, the Los Angeles City Attorney, and Office of the Comptroller of the Currency fined Well Fargo a total of $185 million for opening unauthorized customer accounts, which the bank then used to charge fees. The bank has also agreed to make restitution to the defrauded customers. As the New York Times reports:
Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.
This was an astonishingly brazen, large-scale effort, clearly a systematic, institutionalized campaign. It is virtually impossible for senior executives not to have known what was going on. The big reason that Wells has managed to cultivate the myth that it is better managed than other large banks is that it is largely a traditional bank, as in it is not seriously involved in free-wheeling, high-risk, hard to manage investment banking activities.
But traditional banks, and above all retail banking operations, are extremely routinized. Customer-facing staff have virtually no discretion. For decades, bank branches have been operated as retail stores, with employees offering standard products. Similarly, the activities of call center staff are similarly highly circumscribed, set forth in clearly defined routines, which includes strict scripting for some interactions.
In other words, there is no way to defend the lack of punishment of executives in a fraud of this scale that extended over five years. Either they were in on it, or somehow lower level employees cooked this up and were able to hide it from the top brass. The latter would represent a massive control failure. Under Sarbanes Oxley, the CEO and CFO are required to certify the adequacy of financial and operational controls. There is no way the Wells Fargo’s can have it both ways. Either they were in on the ripoff or they were not even remotely on top of what was happening. But, in keeping with the half-hearted enforcement culture that has become normal in the US, the executives were allowed to get away with crooked conduct that unquestionably was their responsibility, whether by omission or commission.
Even worse, regulators are allowing Wells to obscure the level of managers that were sanctioned, when even the weasel-wordig of public statements makes it clear that it was only low-level supervisory staff that were booted. And to add insult to injury, Wells is getting away with bogus accounting by stating it fired 5,300 employees as part of rooting out this misconduct. The wee problem with this claim? The terminations in question took place over five years. Yet the timelines presented in media reports suggest that the heat on Wells didn’t get serious until 2015, when the Los Angeles city attorney filed suit against the bank. The city would not have found it necessary to file a claim if Wells had been serious about rooting out the grifting as of then. But it is too easy for casual readers to miss the significance of this section from the Wall Street Journal’s report:
In detailing the widespread nature of the bank’s alleged missteps, CFPB said Wells Fargo, has “terminated roughly 5,300 employees for engaging in improper sales practices.” The bank, the nation’s largest by market value, would not comment on the “levels of leadership” involved in the firings, but bank spokeswoman Mary Eshet said “both managers and team members were affected.”
She said the firings should be seen in the context of the bank’s size—it had 268,000 employees at the end of June—and that they happened over five years.
So the general public is supposed to take comfort that 98% of Wells Fargo’s employees are not now acknowledged to be crooks? And if we are to believe the bank’s claim that it’s been addressing this, ahem, impropriety over the last five years? That means either the regulators had nothing to do with the terminations, or they are perversely giving Wells a break by letting them take full credit.
Wells attempted to minimize the scale of this ripoff as, in the words of the New York Times, it “stressed that the refunds have been relatively small — averaging about $25.” First, the monetary loss doesn’t begin to capture the amount of harm. As various media reports indicate, some consumers suffered damage to their credit scores as a result of incurring charges on these bogus accounts. That not only hurts anyone who might be seeking to borrow but is also a demerit in the eyes of prospective employers. And it takes time and energy to clear up error on a credit report, which is likely to be worth more than the “average” $25 phony charge.
Second, the small typical invalid charge is what likely made this the perfect crime in the eyes of Wells employees and managers. In the days of defanged class action attorneys, who would stop them? Reading between the lines, it appears the Los Angeles City Attorney, which imposed $50 million of the total $185 million of fines, led this charge, which would mean the financial regulators were Johnny-come-latelys. From Bloomberg:
Los Angeles City Attorney Mike Feuer sued Wells Fargo last year and accused the bank of high-pressure quotas for workers that encouraged them to skirt the rules.
“When I worked at Wells Fargo, I faced the threat of being fired if I didn’t meet their unreasonable sales quotes every day, and it’s high time that Wells Fargo pays for preying on consumers’ financial livelihoods,” Khalid Taha, a former employee, said in a statement.
In addition, we’ve repeatedly pointed out that the sanctimonious claims by Wells executives and spokesmen over the years that it was a better run, more upstanding concern that its TBTF counterparts were bunk. During the 2010 to 2014 period, when we followed mortgage chain of title and foreclosure abuses in extensive detail, Wells was consistently one of the very worst actors, yet had the temerity to carry on as if it was better behaved than its peers.
But the regulators and the financial press that is dutifully amplifying their self-serving public relations would have you believe that yet another refusal to hold the ultimate perps accountable has banksters shaking in their boots. This insult to reader intelligence comes from the Financial Times:
The aggressive regulatory stance is also likely to concern others in the industry, which is under political scrutiny in the run-up to the presidential election as well as financial pressure from rock-bottom interest rates to boost profits.
And Elizabeth Warren engaged in flag-waving, evidently because at $100 million, the Consumer Financial Protection Bureau’s biggest fine to date. Again from the Financial Times:
The CFPB’s move was welcomed by Elizabeth Warren, a bank-bashing Democratic senator who was instrumental in creating the agency.
“Wells Fargo cheated its customers out of millions of dollars in fees by opening new accounts and transferring customers’ money without permission,” Ms Warren told the FT in a statement.
“Thanks to the CFPB, those customers are getting their money back and the bank is paying a record-breaking fine that will cause the next bank to think again before engaging in this kind of misconduct. The consumer agency continues to deliver for working families.”
Warren apparently views a toothless tiger as better than no tiger at all. And the worst is she might actually believe this part: “…the bank is paying a record-breaking fine that will cause the next bank to think again before engaging in this kind of misconduct.” This “record breaking fine” is a rounding error compared to Well’s Fargo’s second quarter profits of $5.6 billion. Not surprisingly, investors shrugged off the fines. The bank’s stock traded up by 13 cents on Thursday, closing at $49.90. In other words, to the extent bank execs do “think again” before permitting fraud to take place on their watch, the lack of any impact on sacrosanct share prices and on the officials personally says they should see if they can get away with it, since the downside is inconsequential.
This sorry incident is yet another proof that we live in the best of all possible worlds for the top 1%, where no unseemly questions about who knew what when are pursued seriously. It’s routine for CEOs, as justification for their stratospheric pay, to claim they are responsible for every aspect of corporate success yet are never challenged when they descend into the ritual “I know nothing” denials over misconduct that took place on their watch. If anyone wants to understand why non-traditional candidates like Bernie Sanders and Donald Trump are getting traction, it’s the refusal of the elites to police their own ranks. Even in a year when the Democrats are under pressure and there have been more and more calls for individual bank executives to be punished, the powers that be can’t bring themselves to do the right thing.