A few weeks ago Federal Reserve Chair Janet Yellen made some short – but very direct – comments about one of the big banks under the Fed’s oversight.
By George Yacik
“Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable,” she said at her press conference following the Fed’s September monetary policy meeting. “We take our supervision responsibilities of the company very seriously. And we are attempting to understand what the root causes of those problems are and to address them.”
Now, for a person one of whose job requirements is to always speak cryptically, vague and ambiguously in public – Fedspeak, in other words – to call out one of the largest banks in the country and call its behavior “egregious and unacceptable” is pretty startling. That’s why I believe a major fine – at least $1 billion – against the Wells Fargo & Company (NYSE:WFC) by the Fed is coming.
Not only would it be justified, but certainly not out of line given past Fed penalties against other banks that committed far less “egregious” misdeeds. The fact that all of Wells’s transgressions were highly publicized and committed against consumers – millions of them – makes it even more imperative that the Fed let Wells have it between the eyes.
Let’s look at some recent big fines imposed by the Fed against the banks it regulates:
- HSBC was fined $175 million last month for unsafe and unsound practices in foreign exchange trading. It was also fined $131 million in February 2016 for deficiencies in residential mortgage loan servicing and foreclosure processing.
- BNP Paribas, $246 million in July for unsafe and unsound practices in FX markets.
- Deutsche Bank, $41 million in May for anti-money laundering deficiencies and $156.6 million in April for unsafe and unsound FX practices.In May 2015, six large banks were fined a total of more than $1.8 billion for unsafe and unsound practices in FX markets, including $342 million each for UBS, Barclays Bank, Citigroup, and JPMorgan Chase.; $274 million for Royal Bank of Scotland, and $205 million for Bank of America.
- This list doesn’t include the tens of billions of dollars assessed by the U.S. Department of Justice and other government agencies against scores of banks since the financial crisis for a variety of offenses, from selling securities backed by toxic mortgages to facilitating money laundering to manipulating the Libor rate to FX trading violations.
You get the idea. By comparison, Wells Fargo has so far been fined $185 million, $100 million of it from the Consumer Financial Protection Bureau. But we found out a couple of weeks ago that the agency’s lawyers believed that Wells could have been fined as much as $10 billion but the agency, in its haste – which has yet to be fully explained – agreed to settle for 1% of that total.
To say that Wells has gotten off with a relative slap on the wrist is an understatement. Let’s hope the Fed makes up some of that justice.
Let’s quickly review Wells’s misdeeds that have been uncovered over the past year or so and see if you agree if the punishment so far falls well short of the crime.
In the bank’s well-publicized phony accounts scandal, which brought on the $185 million penalty, over the course of at least six years – but probably way longer than that – Wells opened more than 3.5 million accounts for its own customers without asking their permission. While the bank has seen fit to characterize the scandal as overzealousness by its retail employees – thousands of whom were fired as a result – the fact is that it was company policy for decades to open as many accounts per customer as possible, and its employees were pressured into doing so.
Since that scandal came to light late last year, more customer-unfriendly acts have been disclosed or uncovered.
Last week, in conjunction with CEO Timothy Sloan’s testimony before the Senate Banking Committee, the bank said it would refund money to mortgage customers who were unfairly charged rate lock extension fees where Wells was primarily responsible for causing the delays.
In August, the bank agreed to pay $108 million to settle allegations that it overcharged military veterans for refinance loans. It also disclosed in a regulatory filing that the CFPB is looking into claims that it closed customers’ accounts and left them without access to their funds without telling them why it did so.
In July, the Wells Fargo & Company (NYSE:WFC) admitted that it charged as many as 570,000 auto loan customers for insurance they neither needed nor asked for, and about 20,000 of them had their cars repossessed as a result.
That same month, an outside attorney for the bank inadvertently sent sensitive financial information on at least 50,000 high net-worth customers to the attorney representing a former Wells employee who was suing another bank employee —his own brother, it turned out — for defamation. While that one may have been an honest mistake and not wrongdoing, the fact is businesses are liable just as much for their mistakes as they are for deliberate transgressions.
Little has been done to clean house within Wells. While former chairman and CEO John Stumpf lost his job as a result of the phony accounts scandal, his chosen successor, Sloan, moved seamlessly into the CEO’s office.
But as Senator Elizabeth Warren, D-Mass., told Sloan bluntly at last week’s hearing, “At best you were incompetent, at worst you were complicit. Either way, you should be fired. Wells Fargo needs to start over; that won’t happen until the bank rids itself of people like you.”
Nor should the Wells Fargo & Company (NYSE:WFC) get away with a paltry $185 million in fines. Let’s see if the Fed sees it that way, too, and hits the bank with a more appropriately-sized penalty.
By George Yacik