Record-breaking
fine "is a rounding error compared to Wells Fargo's second quarter profits
of $5.6 billion"
The
biggest fine came from the Consumer Financial Protection Bureau (CFPB), which
levied its largest-ever penalty: $100 million. The Los Angeles City Attorney
and the Office of the Comptroller of the Currency were also party to the
settlement.
"Wells
Fargo employees secretly opened unauthorized accounts to hit sales targets and
receive bonuses," said CFPB
director Richard Cordray on Thursday. "Because of the severity of these
violations, Wells Fargo is paying the largest penalty the CFPB has ever
imposed."
According
to the CFPB, those violations included:
Opening deposit accounts and transferring funds without authorization: According to the bank's own analysis, employees opened roughly 1.5 million deposit accounts that may not have been authorized by consumers. Employees then transferred funds from consumers' authorized accounts to temporarily fund the new, unauthorized accounts. This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals. Consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts.
Applying
for credit card accounts without authorization: According to the
bank's own analysis, Wells Fargo employees applied for roughly 565,000 credit
card accounts that may not have been authorized by consumers. On those
unauthorized credit cards, many consumers incurred annual fees, as well as
associated finance or interest charges and other fees.
Issuing
and activating debit cards without authorization: Wells Fargo
employees requested and issued debit cards without consumers' knowledge or
consent, going so far as to create PINs without telling consumers.
Creating
phony email addresses to enroll consumers in online-banking services.
In
addition to the $185 million in fines, Wells Fargo will refund all affected
consumers, to the tune of roughly $2.5 million.
"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 to Bloomberg.
But
many critics said the penalties didn't go far enough, considering that, as Matt
Egan put it for CNN Money, "The scope of the
scandal is shocking."
"It
sounds like a big number, but for a bank the size of Wells Fargo, it isn't
really," David Vladeck, a Georgetown University law professor and former
director of the Federal Trade Commission's Bureau of Consumer Protection, told
Egan.
Indeed, wrote Yves
Smith at Naked Capitalism:
This "record breaking fine" is a rounding error compared to Wells 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.
Furthermore, Alicia
Adamczyk pointed out at Money, "the almost $200 million
fine won't come out of the pockets of wealthy bank executives who established
the aggressive sales goals that led to widespread fraud. Wells Fargo
shareholders are on the hook for that. And you're probably one of
them."
As
analyst and commentator Josh Brown explained at
his blog, Reformed Broker:
You guys know who pays the $185 million fine, right? Not the executives. The shareholders. That's you. Wells Fargo is America's most valuable bank by market cap at $250 billion. It's held by Vanguard, BlackRock, Fidelity and virtually every other fund company in existence, which means you are indirectly a shareholder if you have a 401(k). Lots of ordinary investors hold the common stock of Wells Fargo in their personal accounts outright. Many more own it in mutual funds or ETFs. You're paying. You.
Smith
also took issue—as many did—with
the "lack of punishment of executives in a fraud of this scale that extended
over five years."
"Either
they were in on it," Smith wrote of those at the top, "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. ... There is no
way [Wells Fargo executives] 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
U.S., the executives were allowed to get away with crooked conduct that
unquestionably was their responsibility, whether by omission or
commission."
Commentator
Matt Stoller explored a similar argument in a series of tweets:
Either Wells management knew about this and they are crooks
or they didn't and the institution is too big to manage.
—
Matt Stoller (@matthewstoller) September 8,
2016
8. Now, to be clear, obviously the executives should be
charged for this. It's negligence on a grand scale, at the very least.
—
Matt Stoller (@matthewstoller) September 9,
2016
10. We have a political and commercial system that does
not protect the property rights of the broad mass of people.
—
Matt Stoller (@matthewstoller) September 9,
2016
"What
other business in the world could defraud a couple million customers and not be
in jail?" wondered Dennis Kelleher, president and chief executive of
Better Markets, in an interview with Common
Dreams.
Indeed,
the news "raises the question yet again," Kelleher said, of whether
massive financial institutions "have learned anything in the past 10
years."
While
executives have largely been let off the hook,
news outlets reported that
Wells Fargo has fired—over the last five years—at least 5,300 employees who
were involved in the scam. But that claim, too, is problematic, Smith
explained:
[T]o 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 percent 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.
Meanwhile,
Federal Reserve governor Daniel Tarullo said Friday that the latest scandal was
evidence that bank behavior hasn't "changed enough" since the
financial crisis.
MarketWatch reports that
Tarullo "said he wanted regulators to hold individuals at bank responsible
for inappropriate behavior rather than simply have firms pay fines. Even
criminal prosecution of bank officers should be pursued 'in order to make the
point that there is individual culpability'," he said.