The Consumer Financial Protection Bureau left very little unsaid when it announced, just days before Christmas, $3.7 billion in assessments against Wells Fargo Bank for more than a decade of legal violations that harmed its millions of customers .
The total included a $1.7 billion civil penalty, the largest imposed by the CFPB in its 11-year history, and an additional $2 billion in reparations and restitution for defrauded customers.
“Simply put, Wells Fargo is a corporate repeat offender that puts one-third of American households at risk of harm,” CFPB Director Rohit Chopra said, calling the giant bank “one of the most problematic repeat offenders” in its jurisdiction.
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One would think that a financial institution so badly hit would respond to the punishment with humility and candor. Unfortunately, no. This is Wells Fargo we’re talking about, so in its own press release it described the CFPB order as an “agreement … to resolve multiple issues.”
The release didn’t even mention the $2 billion in repair and restitution to customers. He noted that the CFPB, in its December 20, “acknowledged” that the bank had “accelerated corrective actions and correction” since 2020, implying that the bureau was very satisfied with the results.
Simply put, Wells Fargo is a repeat offender that puts one-third of American households at risk of harm.
– CFPB Director Rohit Chopra
In fact, however, Chopra said in his prepared remarks that the bank is “not moving quickly” to fix its long-standing problems. In fact, its recent “product launches, growth initiatives and other efforts to boost profits” may even have “delayed needed reform.”
Of course, PR departments are not expected to deliver bad news. But it’s still rare to see a masterpiece of corporate language like Wells Fargo’s statement cross the desk.
The bank hinted that the CFPB’s order only cleans up some old business “related to auto loans, consumer deposit accounts and mortgage loans,” without going into detail about what it was accused of, beyond ‘mention “a series of unacceptable practices”. For this, reference should be made to the CFPB’s 32-page consent order itself, which provides considerable detail.
Before reviewing the bank’s disreputable track record, let’s examine the regulatory system that allowed it to get to this point.
The fundamental problem is the tendency of US business regulators to go easy on big companies they catch breaking the law. The bigger and more important the company, the more lenient its government overseers.
In the banking industry, a prime example is JPMorgan Chase & Co., which has compiled a truly impressive history of corruption and fraud even as it operates under supposedly heightened regulatory scrutiny.
In 2020, the company was disciplined for a serious, egregious, years-long conspiracy to manipulate the financial markets through thousands of episodes of illegal trading of precious metal futures and futures contracts. US Treasury
Dan M. Berkovitz, then a member of the Commodity Futures Trading Commission, called “the extent of the misconduct and market damage … unparalleled.”
The government hit JPMorgan with a record $920 million in fines and penalties. However, market watchdog Better Markets rightly called the outcome a “love deal”.
That’s because the market manipulation charge was the third JPMorgan has faced in recent years, including a 2010 and 2011 California electricity market rigging scheme for which the bank paid a $410 million penalty.
JPMorgan was already under a probation sentence imposed in May 2015 for manipulating the foreign exchange market, to which the bank pleaded guilty to a conspiracy charge. In that settlement, the bank was prohibited from “committing another crime in violation of the federal laws of the United States.”
However, the crimes at the center of the 2020 enforcement case dated back to at least 2008 and continued until at least January 2016, prosecutors said. That means the alleged market manipulation was taking place while the previous deal was being negotiated and continued for seven months after the bank promised not to break the law again.
In that 2015 settlement, JPMorgan pleaded guilty to one criminal count of conspiracy and agreed to pay $550 million in fines. Four other banks – Citicorp, Barclays, Royal Bank of Scotland and UBS – also pleaded guilty and agreed to pay a combined $2 billion in fines.
Prosecutors promised there would be no second chances for these criminals. “We will hold financial institutions accountable for criminal misconduct,” one of the prosecutors said.
Instead, despite a new “unparalleled” felony charge, JPMorgan’s sentence was just upgraded to three years of probation.
The instruments that regulators and prosecutors use to extract a few bucks from corporate offenders without actually punishing them fall into two categories: deferred prosecution agreements, or DPAs, and consent orders.
The former are settlements in which the government refrains from bringing a criminal case as long as the target agrees not to commit the same or another crime within a specified period. The second are agreements in which a company agrees to pay a penalty and take other compliance measures—reimbursing defrauded customers, improving its internal anti-fraud compliance, etc.—without admitting or denying regulators’ allegations.
The deferred prosecution game was used to great effect by JPMorgan. In 2014, the bank reached a deferred prosecution agreement related to its alleged failure to alert authorities to what it knew about the Ponzi scheme of Bernie Madoff, a Morgan client.
However, the alleged conduct in 2020 dated back to the period covered by the settlement, so the prosecution should have been reinstated. Obviously, unless prosecutors follow through on their promise to enforce the DPA, it is worthless. As Better Markets puts it, an unenforced DPA is nothing more than “a sham and a fraud on the public”.
As for consent orders, Wells Fargo has piled them up like a deer in the woods picks up ticks. From a corporation’s perspective, consent orders are great because corporations can almost always sign them without “admitting or denying” the regulators’ findings of fact or conclusions of law.
Occasionally, a regulator will report repeat corporate infringers. In 2015, then-Securities and Exchange Commission Commissioner Kara M. Stein dissented from a slap on the wrist issued by the SEC to JPMorgan and four other banks that had pleaded guilty to felony forex market manipulation.
The SEC granted the five banks exemptions from rules requiring them to be disqualified from certain privileges as market participants. As Stein noted, that was the sixth such waiver granted to Morgan in seven years; In total, the five banks had received more than 23 such exemptions over the previous nine years.
“This type of recidivism and repeated criminal conduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers,” Stein complained. “We have the tools … but we refuse to use them.”
She was right. If regulators repeatedly let corporate offenders off the hook, nothing will stop them from repeatedly breaking the law, knowing that they will only be granted yet another exemption from the consequences.
In its latest press release, Wells Fargo congratulated itself on achieving the termination or expiration of four previous consent orders reached with the CFPB and the Comptroller of the Currency. In none of them did the bank admit or deny the allegations, although it did pay millions of dollars in penalties.
This doesn’t even scratch the surface. By my count, Wells Fargo has collected at least 14 consent orders from the CFPB, the regulator and the Federal Reserve since 2011, of which 10 may still be in effect.
On one occasion, the bank had to appear in federal court (so to speak) and directly admit to its criminal activity. It was 2020 when Wells Fargo admitted to charging millions of dollars in improper fees and interest, damaging some customers’ credit ratings, and misusing customers’ personal information to open accounts without their knowledge. The bank paid a $3 billion penalty, and in return got — wouldn’t you know it — a deferred prosecution agreement.
Let’s now remember what this bank has been doing. The case in point is the account-opening scam first uncovered by my former Times colleague E. Scott Reckard in 2013, in which Wells Fargo bankers opened up to 2 million fake accounts on behalf of existing retail customers or non-existing individuals in compliance efforts. relentless sales pressure imposed from above.
The bank said it fired 5,300 mostly rank-and-file employees over the behavior, but it was clearly the result of an unforgiving and unrealistic corporate culture.
The CFPB’s Dec. Penalty 20 covers the bank’s record of misapplying borrowers’ payments on auto loans, resulting in improperly charging fees and interest and, in some cases, improperly repossessing borrowers’ cars. Of the $2 billion in restitution, a total of more than $1.4 billion is owed to 11 million of these borrowers. Most of it has already been paid.
There were multiple problems in home mortgage servicing, including improper denials of loan modification applications and rate miscalculations and other errors that resulted in foreclosures in up to 3,200 cases. The bank is ordered to make about $275 million in compensation to affected mortgage customers.
The bank had a flawed system for dealing with deposits from accounts it deemed “suspicious” – freezing not only suspicious deposits, but customers’ entire accounts and any other accounts they held. This prevented customers from accessing their money for two weeks. Wells Fargo also charged some customers improper monthly fees and overdraft fees. The bank will refund about $300 million to at least 4 million affected customers.
That’s all? The CFPB isn’t convinced Wells Fargo has its house in order. The bank is now on its third CEO since 2016, when John G. Stumpf, who had held the role since 2007, stepped down in the wake of the account opening revelations.
Wells Fargo has been trying to restore its reputation since then, but has suffered some missteps. In 2018, for example, he tried to fend off a shareholder lawsuit by claiming that the corporate statements he was working to “restore trust” were just “corporate puffery … that no reasonable investor could rely on “.
CFPB officials say Wells Fargo isn’t the only bank to mistreat customers this way, but it appears to be landing on regulators’ records with disturbing frequency. The bank still claims that, as it said in its December. 20, “has made a number of changes to transform the way it operates.” We will see if this is finally the real thing, or just more inflated.