The Wells Fargo phony-account scandal may be worse that we’ve led to believe, even after a $185 million fine and the CEO’s resignation. And this isn't Wells Fargo’s first scandal. Its past exploits include discriminatory lending, exploitative payday loans, and a lucrative sideline in for-profit prisons.
Meanwhile, Hillary Clinton’s Wall Street speeches are casting a pall over her potential victory and weakening her political capital before she even assumes office. She should make a pledge now: to take immediate action in her first 100 days that will address Wells Fargo’s scandals and the systemic problems behind them. We have nine suggested actions, and there will undoubtedly be others.
But first, some background.
Taken for a stagecoach ride.
The Wells Fargo brand resonates with the mythology of the American West, but this lawless town needs a new marshal. CEO John Stumpf’s resignation just isn't going to cut it.
It’s not that the evidence exonerates him. Far from it: Whistleblowers began complaining to Wells Fargo's management back as 2005, the year Stumpf was named president. (He became CEO in 2007 and chairman of the board in 2010.)
The bank says it has fired 5,300 employees for opening more than 2 million fraudulent accounts over the last five years. But John Stumpf – President, CEO, Chairman – claims he had no knowledge of these events. The bank's employee incentive system, low pay, corporate culture, and sales guidelines were all designed to encourage this kind of fraud – but Stumpf was shocked, shocked, to learn that this kind of behavior was going on in his establishment.
The problem isn't that Stumpf is leaving. It’s who’s staying. As the Los Angeles Times’ Michael Hiltzik reports, Stumpf’s replacement as board chair is Stephen W. Sanger, the former CEO of General Mills. Sanger’s been a member of the Wells Fargo board since 2003. Sanger has received $1.7 million in payments from the bank since 2011, for which he (like any director) is expected to be rensure that the bank is run well – and legally. As Jim Hightower notes, all the bank’s board members bear responsibility for its long-term culture of fraud.
A thorough housecleaning would have meant the removal of all the bank’s senior officers. As a former employee told the New York Times:
“They all created the bank’s culture of leading by fear and intimidation.”
But the new CEO, Timothy J. Sloan, is a 29-year Wells Fargo veteran who will have been deeply steeped in its poisonous culture. And Wells Fargo heaped encomiums on its disgraced outgoing CEO, Stumpf, where apologies to customers and shareholders would have been more appropriate.
It all reeks of "crisis management,” that form of corporate damage control that emphasizes rapid-response showmanship and glitzy PR moves over the assumption of responsibility and the implementation of meaningful change.
As economist and white-collar criminologist William K. Black Jr. explained recently, we only know what Wells Fargo has chosen to tell us about this latest epidemic of fraud. This response isn't a confidence-builder.
Neither is the recent revelation that Stumpf sold $61 million in stock in the month before the $185 million settlement was announced. That looks a lot like “insider trading.” As a well-known securities lawyer told CBS News, “I would be shocked if the Securities and Exchange Commission doesn’t look heavily into this.”
A history of scandal.
This isn't Wells Fargo's first crooked rodeo. It was one of the worst actors in the nation's foreclosure fraud epidemic, eventually paying $1.2 billion in settlement charges.
It paid $175 million for racially discriminatory lending practices. As Assistant Attorney General (now Labor Secretary) Tom Perez wrote:
“An African-American wholesale customer in the Chicago area in 2007 seeking a $300,000 loan paid on average $2,937 more in fees than a similarly qualified white … A Latino borrower in the Miami area in 2007 seeking a $300,000 paid on average $2,538 more than a similarly qualified white applicant.”
Perez called these added fees a “racial surtax.”
Wells Fargo has also profited from the mass incarceration crisis and the detention of immigrants. A 2012 report from National People’s Action, the National Prison Divestment Campaign, and the Public Accountability Initiative (“Banking on Immigrant Detention”) detailed the bank’s investment and lending ties with for-profit prison corporations - companies that lobbied extensively for immigration and criminal justice policies that led to higher rates of incarceration.
And Wells Fargo was one of the last major banks to end its own payday lending practice, doing so only at regulators’ insistence. A 2010 report showed that Wells Fargo was “a major financier of payday lending and is involved with financing companies that operate one third (32%) of the entire payday lending industry, based on store locations.”
A 100-day plan.
A major figure in finance, New York Federal Reserve President William J. Dudley, spoke in 2013 of “deep-seated cultural and ethical failures at many large financial institutions.”
Wells Fargo is that culture’s new Exhibit A. But there are steps Hillary Clinton can move decisively to end the culture of lawbreaking and governmental indifference in her first 100 days. Steps she could take include:
1. Choose only strong, independent appointees -- not Wall Streeters. Clinton can ensure that her Administration will be free of those “deep-seated cultural and ethical failures” by choosing appointees who’ll enforce the rules without fear or favor - and by not appointing anyone from a major bank to a senior government position.
2. Reform the whistleblower program. Clinton should promise to upgrade and strengthen the system, which appears to have failed both the whistleblowers and the public in Wells Fargo’s case. The Bank Whistleblowers Alliance has some proposals.
3. Investigate Stumpf’s trades. If the SEC hasn’t moved swiftly to investigate those trades, its already-embattled director has some explaining to do. But the next president must make sure that promptly opens an investigation into Stumpf’s stock trading in the month before the185 million settlement.
4. Investigate the 2 million phony accounts. The SEC and Department of Justice should also investigate Stumpf, his senior executives (including Sloan), and the Wells Fargo board regarding this account fraud.
5. Protect and expand the CFPB. Wells Fargo’s crimes prove that we need the Consumer Financial Protection Bureau. It should be defended from the Republicans who seek to gut it. Its budget and oversight responsibilities should be expanded to meet the ongoing threat posed by criminal bankers.
6. Break up the big banks. We agree with Republicans and Democrats who say that Wells Fargo proves too-big-to-fail banks are still a threat to the economy. The next president should direct her Treasury Secretary to develop a plan to break up Wells Fargo and others of comparable size.
7. Restore Glass-Steagall. The new president should also press for a 21st-Century Glass-Steagall Act separating consumer banking from investment activities, so that shareholders and executives will no longer be bailed out when they engage in fraud or mismanagement.
8. Investigate big-bank involvement in payday lending. The new president should direct her regulators to investigate the current state of big-bank involvement in the payday lending industry, and to publish a report of its findings that includes the social cost of this activity and more constructive alternatives for the so-called “unbanked” population.
9. Ensure justice for all. Lastly, she should demonstrate in word and deed what has unfortunately yet to be demonstrated in the nation's capital: that the law will be enforced on Wall Street as well as on Main Street without fear or favor. Whether those crimes consist of investor fraud, consumer fraud, theft, or racial discrimination, no bank executive should ever again believe he or she is above the law.
Hillary Clinton could strengthen her political hand by promising actions like these at the start of her presidency. But it would be naive to assume that she'll do it on her own. Voters should ask her to make such a pledge now, for the good of the country.