On the one hand, it’s frustrating to see Wells Fargo, which engaged in a remarkably large-scale, brazen fraud by opening as many as 2 million fake accounts to keep its stock-boosting cross-selling story going, get away with penny-ante costs. The initial joint regulatory fines of $185 million, combined now with an additional $110 million settlement of some private suits, seems skimpy.
But even though Wells opened tons of bogus accounts, it levied bogus fees in a smaller number of cases. Those charges didn’t add up to big bucks. While customers suffered all sorts of other harm, like possible damage to credit ratings (opening more accounts, or even just pulling more credit reports, are a demerit) and the hassle of fighting Wells to close phony accounts and get rid of fraudulent charges, regulators and courts see those costs as too intangible to be worthy of compensation.
On the other hand, the private lawsuit settlement shows why Corporate America has been keen to try to kill class action litigation: despite lawyers taking their oft-derided big cut, Wells customers will be getting more out of the private settlement than out of regulators’ efforts. As the Los Angeles Times reports:
On Tuesday, the bank agreed to pay $110 million to settle a class-action lawsuit filed two years ago, a deal that could also put to rest 11 other class-action cases, many filed after the bank’s practices were thrown into the national spotlight last September.
The settlement, if approved by a federal judge in San Francisco, would provide payouts to all Wells Fargo customers who say they have been victims of the bank’s bad practices from 2009 until now…
The settlement marks a dramatic legal turnaround for Wells Fargo customers, who have had little success in taking the bank to court over unauthorized accounts. The bank has successfully argued in several cases that customers cannot sue the bank and instead must resolve disputes in private arbitration.
By contrast, under the joint $185 million settlement, Wells agreed to pay only as much as $5 million to customers, and the settlement put Wells in charge of deciding who to pay what. By contrast, The Los Angeles Times reports that Wells has paid out only $3.2 million to date.
If you assume 40% of the $110 million goes to lawyers (which is a high estimate), you have $66 million going to customers, nearly 20 times what they would have otherwise received.
Regulators simply aren’t keen about going after what they regard as nickel and dime frauds, even if perpetrated on a large-scale basis. The old class action bar was the main check against that, and big business has been very successful in curtailing these lawyers’ ability to operate. By contrast, after the hissy fit in the House and Senate by both parties over the Wells abuses, they’ve all lost attention and moved on to fresher causes celebre. For instance, I don’t see any comments from Elizabeth Warren on Twitter related the latest Wells developments, which would seem to support her case for keeping the Consumer Financial Protection Bureau, but perhaps she’ll weigh in later.
The apparent reason for the settlement was that the lead plaintiff, Shahriar Jabbari, was going to appeal a lower court ruling that among other things, said that Wells could force customers into arbitration on phony accounts if they had valid Wells accounts where they’d consented to arbitration. Reading between the lines, Wells seemed sufficiently eager to preserve such a favorable (and nonsensical) precedent that it was willing to put the case to bed.
Wells is hardly out of the woods. It faces lawsuits by former employees who allege they were demoted or fired for refusing to participate in the cross selling scam or not meeting its impossible targets. Those could potentially lead to larger damages, since the lost wages and career harm could be significant, and the bank would be very eager to avoid discovery. And the bank got another ding on Tuesday when the Office of the Comptroller of the Currency dropped Wells’ Community Reinvestment Act rating, due not just to the cross-selling abuses but also other regulatory actions.
But perhaps most important, savvy customers are giving Wells a wide berth. Again from the Los Angeles Times:
In a report last week, the bank said credit card applications were down 53% in February compared with the same month last year, while customers opened 40% fewer checking accounts.
Couldn’t happen to a more deserving bunch.
I’m on a Board of a small non-profit. I made sure that we had divested from any holdings in Wells Fargo. We are small potatoes, but I believe that the CA UC and State Univ systems have also divested from any holdings in Wells Fargo. They are big potatoes.
Crooks. We should be seeing more orange jump suits.
Why anyone continues to bank with the usual suspects (Wells, BoA, HBSC, Chase, Citi, etc) is beyond me. There are plenty of credit unions and smaller local banks out there, all of whom can provide better service with less expense than the monster banks. I have a lot of liberal friends who continue to bank with these crooks, there is a real disconnect. People need to vote with their money.
Some locations have small local banks or medium sized regional banks. Unfortunately, there are places where most of the smaller banks have been bought up by the giants. Some of the people who use those banks are legacy customers, who started banking at a small local bank which was later bought by a giant bank. I found this chart, which shows that in the past 30 years, the number of banks in United States had dropped from slightly more than 14,000 to a little under 6,000.
As you point out, credit unions are an option, although I suspect that some locations don’t have any. There are a little more than 6000 credit unions in the U.S.
The only problem though is that I’ve read that big banks like Wells Fargo actually lose more money than they gain by providing financial services (such as personal bank accounts) to ordinary consumers. So boycotts won’t help.
Lord Koos, I agree completely. I’ve been a credit union member for years, and couldn’t
be happier. And I’ve tried to get others to join, to no avail, despite these people often
being self-described lefties. Credit Unions are a bit of well-functioning *real-world Socialism*, and can be a model for expansion into other parts of the Commons.
1. If consumers got 5 mil of the 185 mil regulatory fine, where’d the other 180 mil go?
2. Lord Koos, concur. The one dread owners have is if we peasants ever savvy up, we would just stop buying their stuff and run them out of business. Ex: when BP ruined the Gulf, we could buy gas anywhere but BP. This remaining tool we have is why I am convinced owners have put their foot on the gas to looting the working class. Once we lose buying power, it’s over. Check out the history of peasant revolts – they mostly get lined up against a wall.
3. Dumped banks 25 years ago. State credit union, still practices old-school underwriting, could not be happier.
4. Would happily tie the nooses and toss them over Wall Street lampposts. And then sell tickets…
The fines go to the agencies, which included the LA prosecutor’s office. And the up to $5 million was in addition to that.
Thank you ma’am! Totally not my area. I’ve often wondered where the money went and was any thought given to making victims whole. Apparently not.
Now you’ve got me wondering, those agencies are budgeted for and funded, why do they need the money when there are better claims on it?
Any insight appreciated.
$$$$ paid out by the corporation is no penalty at all for the guilty.
The only sanction that can possibly work: prison time.
You’ll note that every financial RICO sinner is willing to pay no end of $$$ so that the perps don’t serve any time.