Wells Fargo is getting yet more deserved bad press. Gretchen Morgenson and Emily Glazer of the Wall Street Journal reported Tuesday that the bank was making a hash of the customer restitution it had promised to make in connection with its various scandals. Even though the press firestorm last fall was over the bank’s “fake accounts,” the much bigger payments to customers, and the ones it is messing up involve the force placing of auto insurance, which in over 20,000 cases led to car repossessions, and charging unjustified fees in connection with mortgages. The Journal’s story got the attention of Elizabeth Warren, who shot off a letter to Wells Fargo CEO Tim Sloan demanding answers.
As we’ll describe below, even though Wells Fargo may try to depict the delays and errors as mere mistakes, there’s at least one process Wells Fargo set up was clearly designed to lower how much the bank has to pay out.
And since we are talking dollar totals across all the abuses that are chump change for a bank the size of Wells Fargo, what this accidental or deliberate ham-handedness says about the bank is not pretty. At best, the bank doesn’t care about doing this right. Another possibility is that the bank is addicted to maximizing profit at no matter what the risk to its reputation and was arrogant enough to think it wouldn’t be disciplined again. Finally, there may be people in positions of influence who resent the regulatory choke chain and are trying get away with as much as they can get away with out of a reflexive, “How dare they tell us how to run our business.” If that is found to play any role in these supposed screw-ups, expect the boot to come down hard on Wells Fargo management.
Although the story only suggested the connection in passing, recall that in the evening of February 2, her last day in office, departing Fed chair Janet Yellen hit Wells Fargo with a balance sheet cap plus required that four directors be replaced. The press seemed stunned at this development, but Yellen had threatened Wells Fargo since last July that it could force the bank to appoint new directors or impose other sanctions if it didn’t shape up. One has to wonder if she’d gotten reports from the OCC and/or the CFPB of these shenanigans and had decided enough was enough.
And in a breathtaking demonstration of tone-deafness, Charlie Munger, the vice chairman of big Wells Fargo investor Berkshire Hathaway, tried depicting “regulators” as meanies who needed to let up on the oh-so-well meaning bank.
— Reuters Top News (@Reuters) February 14, 2018
“Of course, Wells Fargo had incentive systems that were too strong in the wrong direction, and of course they were too slow in reacting properly to bad news,” but “practically everyone” makes those kinds of mistakes, Munger said.
“Wells Fargo will end up better off for having made those mistakes,” he added. “I think it’s time for regulators to let up on Wells Fargo. They’ve learned.”
Help me. It took far too long for Wells Fargo’s board to force out former chairman and CEO John Stumpf. That reflects a lax attitude by Warren Buffett and Munger. Had they cleared their throats, Stumpf would have been out pronto. The bank lost more points with regulators by not coming clean with the full scale of the fake accounts abuses even before the next scandals broke (it was Morgenson who first reported on the forced placed auto insurance).
And notice how Munger artfully used the word “regulators,” hoping bank-friendly investors will think of the meanies at the CFPB, and forget that it was the normally bank-friendly Fed that hit the bank with the latest sanctions, and the first to dent the stock price in a meaningful way. And even though it was Yellen that took this move, her successor Jerome Powell also backed punishing Wells Fargo.
The delayed and botched compensation involves the auto insurance and mortgage customers. Over 600,000 car owners had insurance force placed on them, and over 274,000 became delinquent on their payments as a result. That means even if they didn’t wind up losing their car, they may have suffered credit report damage, which in turn could hurt their ability to get loans and could also undermine a job search. The San Francisco bank had pledged to make $100 million in payments and $30 million of “account adjustments” 1
In addition, Wells Fargo “charged improper fees” to as many as 110,000 customers for extending interest rate commitments on their mortgages. If they were Wells Fargo depositors and these “improper fees” were debited fro their accounts, that would normally be called stealing.
Here is the part that does not pass the smell test. From the Journal:
Wells Fargo will soon require mortgage customers to agree to a refund through the mail before sending them money, and estimates half or fewer will do so….
Wells Fargo for months also has debated internally how to refund customers impacted by its improper mortgage charges. The bank is planning to send letters to customers who were charged interest-rate locks over a particular timeframe, people familiar with the process said. It already refunded customers on a one-off basis who complained directly to the bank about the fees.
With the bank’s planned broader outreach, customers must opt in to the possible refund, and then the bank will send a check, one of these people said. Since the bank is relying on customers to open their mail and get back to them, the bank estimates half or fewer will do so, in line with direct mail response rates, another person said.
So Wells Fargo has been foot-dragging, and to add insult to injury, plans to use a process designed to insure that most the of people entitled to receive compensation won’t get it. It is more work to send customers a letter and process an opt-in than just send out checks. And please don’t try telling me banks find it hard to mail them. I’ve had credit balances on credit cards from three different issuers (Amex, Citi, and Chase) in the last two years, and they seem almost allergic to having the funds, that’s how fast they issued payment, even when the amounts were teeny.
The story also contains a lot of detail on the mess of making payments to the auto insurance scam victims:
The big bank acknowledged that it recently sent out 38,000 erroneous communications to customers that it forced to buy unneeded auto insurance…
Wells Fargo has sent more than 100,000 checks to auto-loan customers out of roughly 800,000 planned, a person familiar with the process said. It has been in close touch with the regulators about the different phases of customer checks and so far agreed on the refunding process for more than half of those customers, the person said.
The first phase was refunding customers who were owed less than $100, with average payments around $30, the person said. Later phases involved larger refunds and states that had more complicated legal processes. Another stage focuses on customers who claim lost wages and out of pocket financial costs because of, for example, a car repossession, mental and emotional distress or other issues. The bank is still sorting out what customers can claim, the person added.
It seems a bit fishy that payments are being delayed for customers owed more than $100 merely because the payment has three or more figures. It seems even more fishy for Wells to blame a delay in reimbursement on state “legal processes”. There may be states like New York with insurance regulators who are awake, but informing them would be a compliance/reporting issue, which has nothing to do with getting money to people.
Elizabeth Warren saddled up again as a result of the Morgenson/Glazer report. Her letter to Wells Fargo CEO Tim Sloan, who Warren has repeatedly said she thinks should be fired, does not appear to be public yet. The high points from Morgenson’s story yesterday:
Ms. Warren asked Mr. Sloan to explain why Wells Fargo is making customers opt in to receive refunds of improper mortgage rate-lock fees. Because the bank’s customers must respond to a mailing to get repaid, Wells Fargo has estimated, according to a person familiar with the matter, that half or fewer will do so—a typical response rate for direct mailing.
“What do you intend to do for the victims that do not ‘opt in’ to receive a refund?” Ms. Warren asked.
Regarding the bank’s effort to repay customers it forced to buy unneeded auto insurance, Mr. Sloan was asked how Wells Fargo will calculate those refunds, especially for customers whose cars were repossessed or whose credit scores were hurt.
Wells Fargo’s efforts to compensate its customers have been “utterly inept,” the letter said. The bank “has caused thousands of people to spend valuable time and money trying to deal with a problem Wells Fargo created.”
As Lambert likes to say, pass the popcorn.
1 The story reports that Wells expected to send 800,000 checks, which is more than the number of harmed customers. Curious as to what sort of process has some customers getting more than one payment.